Valuing used equipment in a dynamic market
In the last year, we have seen dramatic fluctuations in used farm equipment values. Inflation, short supply, high net farm income, and other factors can contribute to variations in equipment values, but to what degree? While one of the most widely accepted methods of valuing used equipment is to look for comparable sales — finding a number of identical pieces of equipment in similar condition and basing value off those —that valuation approach assumes a static market. How can you gain a realistic understanding of the value of your equipment if the baseline is dynamic?
This is where an index – or a baseline reference – can help you cut through the noise.
Creating the Tractor Zoom Used Farm Equipment Index
An index is defined as a “statistical measure of change in a representative group of individual data points, where the data may be derived from any number of sources, including company performance, prices, productivity, and employment.”
To establish any index, the first step is to develop a baseline ‘normal’. Different indices evaluating the same industry can differ if they baseline off different data or time periods. For the Tractor Zoom Used Farm Equipment Index, our baseline focuses on farm auction sales from 2017 through 2020.
In addition to the final sale price of equipment, we incorporate other equipment variables into our index that have a significant effect on the sale value of equipment, and then account for the degree that those variables will add to, or detract from a sale value. For example, take a simplistic monthly scenario:
- Month 1: Two newer tractors are sold for an average of $300,000 each.
- Month 2: Three tractors are sold but they are all high-hour, twenty year-old machines, averaging $50,000 each.
In this scenario, the market really did not drop 6x from month one to month two. By understanding the degree that variables like hours, age, horsepower, and others have on the sale price, we can adjust for those differences to see if the actual sale price was more or less than what we would expect from our baseline mentioned above. It is this adjusted deviation from baseline that helps determine the TZ Index for a particular equipment category.
How we use the Tractor Zoom Used Farm Equipment Index
Think of the Tractor Zoom Used Farm Equipment Index as the way to keep a pulse on the used farm equipment market. Let us do the heavy lifting — we’ll crunch the used farm equipment values and analyze them against other macro variables including things like corn or soybean prices — to help you understand where the used equipment market is going so you can make the right decisions for your operation.
At Tractor Zoom, we’re committed to helping leaders in agriculture make empowered, data-driven decisions when it comes to their farm equipment. By creating the Tractor Zoom Used Farm Equipment Index we not only hope to provide transparency into the over $15B worth of equipment sales transactions we monitor every year, but provide you with actionable insights you can use whether you’re looking to buy, trade in, sell, finance, refinance, or insure your farm equipment.
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