A Look at the Inflation of Farm Equipment

[Author: Tom Junge, Iowa Field Director, 2013 | Keywords: Business, Inflation]

Having been away from the wholesale side of the farm equipment business for 21 years, I find it hard to keep up with the price of equipment. I remember when I left White Farm Equipment that the list price of a 12 row planter was $3,000 a row. Now I hear they are close to $10,000 a row. Dealers have told me about some of the price increases they have seen over the years, especially the large ones caused by the rise of the price of steel and the introduction of Tier 4 engines.

After talking to some dealers, I thought I would attempt to figure out the inflation rate of farm equipment. With the help of a few dealers and the use of the trade-in guide, I sought to compare similar products. I tried to go back 10 years, but for some products I trimmed it to 7 years to avoid another model change and the risk of not comparing apples-to-apples. I found it difficult to compare some products such as combines and larger MFD tractors due to substantial changes in horsepower, transmissions, capacity and optional equipment that has become standard equipment.

In the table below I calculated the annual compound interest rate and the time it would take for the piece of equipment to double in price. I also looked at what the older piece of equipment is selling for today compared to when it was new.

With the inflationary rate of 5.18%, equipment on average is estimated to double in price every 13.9 years. If equipment followed the Consumer Price Index (CPI) which for the past 10 year period has averaged 2.24%, it would take equipment 32 years to double in price.

Due to this rapid inflationary rate on new equipment, it has naturally pulled up the selling price of used equipment. Just using the 9 items that I compared since 2003, they are selling on average for 62% of their original price. The low was the sprayer at 53% and the high was 72% for the Bobcat skid loader. Looking at all items, the winner was the Brent 644 wagon. It is bringing 109% of its original price.

Looking at the 2 tractors that were sold in 2006, their current value is 90% of the original price that the customer paid. It turns out that these purchases and many like it were good investments for farmers. They have been able to operate the equipment for many years and nearly maintain all of their equity. If you were to calculate the hourly cost, it would be insanely low.

It would be worth your time to look back on what the customer paid for the equipment he plans to trade in. If it is like some of the items in the table above, you can show the customer how low his cost of ownership has actually been. This exercise might be enough to ease his mind in making further investments in equipment.