Used Combine Supply Stabilizes, but not Equally

We reported last month that this third quarter would see combine supplies match those of 2021. That has now happened, yet the combines sold at auction were different and it's following a pattern we will likely be feeling for years to come.

Used combine supply at auction matched levels witnessed last year in 2021. While this may be a sign the overall used market has stopped the bleeding, it is not a return to normal supplies the ag industry has historically been accustomed to. Furthermore, the effect from the shortage of new equipment not produced during the pandemic will be felt for a number of years. This will have a dynamic impact on used equipment values as this shortage ‘ages’ from the current state of late model and low-hour combines, to more heavily used equipment. In fact, it already is affecting these low hour models. 

Starting from the top and pulling from our Tractor Zoom database, we can see the supply of all combines sold at auction over the past three years in the graph below. The significant drop in supply from 2020 to 2021 has been well documented already, and easy to see below from the far left to middle bar graph.  From the 2021 to 2022 bar, you can see the overall supply has been pretty much matched year over year.  The gradient in colors is for the combines of differing separator hours and is described in more detail below. 

The gradients are separated into groups of combines that fall into ‘buckets’ of separator hours. The first group in the lightest shade of blue a the bottom represent combines with 0 - 499 separator hours. The next shade darker is of 500 - 999 sep hours and so on… 

Now when we take that first supply graph, and instead of showing total supply, have each sep hour group be represented as a percent of total supply sold that year, we can get the second graph below. 

This view makes it a bit easier to see the change in proportion of late model, low hour combines from 2020 to 2021. In fact the combined group of combines less than 1,000 sep hours went from 15.7% in 2020 to just 10.3% of the auction market in 2021. Well, like everything else, this ‘deprived group’ aged a year and now we can see the supply shortage from 2021 to 2022 represented in the third and fourth tiers, representing the 1,000 - 2,000 sep hour combines. Another 5% reduction from 33.0% in 2021 to 28.1% this year.  

A lot of dealers, including Casey Seymour from Moving Iron, refer to this aging supply as a washout cycle. This vacuum moving through the washout cycle can also be witnessed in the GIF below. 

Supply is an obvious concern if you are looking to buy or sell combines, but if your business is more focused on valuation, then how does this affect you? The whole analysis and answer will have to wait for another post or our upcoming webinar, but essentially as the supply becomes tighter, the value of those combines will increase, assuming demand remains constant. And with tight global food supplies, strong demand is a safe bet for the near future. The big challenge that the GIF above illustrates is that since the shortages of these combines are not static, then neither will be the values. The better comparables will likely be the more recent ones. Are your valuation models set up to account for this rollercoaster?