The $115,000 mistake…and how NOT to make it.

combine depreciation can be a costly part of upgrading

2021 has been a pretty good year for corn and soybean prices, and many farmers are looking to upgrade equipment. One of the highest value items on that list is the combine. But, at the end of the day, does it really make sense, or is it a high-dollar mistake waiting to happen?

John is one of our buddies, and like everybody else, he’s trying to figure out what to do. Is it a better idea to pick up a bigger, newer combine with lower hours, trade in for another one like he’s already got but with lower hours, hang on to what he’s got, or something different altogether?

So, over beers one night, we started talking through his options, and penciled some things out. If you’re in a similar position, maybe this will be helpful to you.

Here are a few key factors to consider when deciding what to do.

  1. Usage
  2. Current Market Value
  3. Interest Expense
  4. Expected Repairs
  5. Fuel Expense
  6. Actual Depreciation

He’s currently using a John Deere S670 with ~1800 separator hours. He’s farming about 1,800 acres with a 50/50 corn and soybean rotation.

Usage

One key factor to consider is how long you plan on owning your next combine. How many years is this thing going to live in your machine shed, and how many separator hours are you going to put on it per year? In John’s case, it’ll probably be about 5 years and ~215 separator hours per year.

Current Market Value

One of the biggest pain points for farmers is understanding the current value of their farm equipment. We looked at prices for over 825 John Deere S670s currently listed on MachineFinder.com and narrowed down the results to just those machines between 1700-1900 hours. This resulted in an average dealer list price of ~$142,000 for 72 machines.

 

 

 

 

 

 

 

For the sake of this argument, let’s assume trade in value of roughly 80% of list value for our John Deere S670. That puts the trade-in value of John’s combine at about $113,600.

Using the same basic data noted above to compare the following, let’s assume a purchase price of ~93% of List Price for each. Here’s the options he’s looking at.

    • Trade up to a John Deere S770 with 500-1000 hrs?
    • Trade up to one with less than 500 hours?
    • Or, trade in for another S670 with lower hours?
    • Or, keep the S670 we have now, knowing we’ll have high repair costs in the future?

John plans on applying the trade-in value of of his S670 to the purchase price of the combines listed above, resulting in our “Trade in Boot Value.” Let’s also assume that the “Trade in Boot” is going to be fully financed and that our current S670 is paid off.

graphic outlining the various John Deere combine purchasing options
Here are the 4 different buying scenarios.

Interest Expense

For each combine above we will assume a payoff term of 5 years with an interest rate of 3.5%. As expected, the S770 with the lowest hours represents the highest interest expense as it has the highest purchase price.

Expected Repairs

Repairs are likely the hardest part of the equation – as it’s nearly impossible to predict. However, let’s agree that as the machine gets older and hours are added – the expected repair costs go up at an increasing rate.

To establish some kind of baseline, we used Iowa State University’s numbers for repair costs (AgDM A3-29)Your repair costs may vary.

For each combine we can figure the percent (%) from the table above by using the list price for each. Newer combines have a higher list price, and the argument is that parts will inevitably be more expensive, even if everything else is equal.

If we slot in John’s usage numbers from above and add ~1075 hours to each machine, we can project the estimated repair costs for each machine over the next 5 years. If he keeps his current machine, that’ll obviously result in the highest expected repair cost as that would put that machine close to 3,000 separator hours at the end of 5 years.

Fuel Expense

For each machine listed the expected hours used are the same. For the S770s we will also assume a 15% decrease in fuel usage due to efficiency gains with the newer machine. Another way of thinking about it is that the fuel cost for the S770’s will be 85% of the S670’s.

We will also use Fuel Required for Field Operations (PM 709) to project fuel costs for each machine. PM 709 assumes 1.0 gal/acre for soybeans and 1.45 gal/acre for corn. For John’s 1800 acre farm that is 50/50 corn & soybeans, that works out to about 2200 gallons of fuel each harvest. If fuel is $3.40/gal, this is how the fuel budget shakes out. (Obviously, we can’t rely on fuel prices to remain constant, so this number will definitely move around a little.)

    • S670’s 5 year Fuel Expense = $37,845
    • S770’s 5 year Fuel Expense = $31,862

Combine Depreciation (Actual Depreciation)

The final key variable is to project out the combine depreciation – the trade in value of the machine 5 years from now with additional separator hours. We will call this value “Actual Depreciation” because it’s what you will receive for the machine when it leaves the farm. I leveraged the same dataset from above and applied the same assumptions to project out the Resale or Trade-In Value.

graph showing actual depreciation by john deere combine model
Here’s a graphic representation of expected combine depreciation of each of the options John’s considering. The numbers are pretty staggering!

The biggest depreciation comes from the newer, lower hour machines. This is to be expected – but farmers often overlook this, despite it being the largest ownership cost over 5 years!

Total Cost of Ownership

Finally, we can add each of the above to get to a total cost of ownership over 5 years – this also allows us to understand the Cost per Acre per Year for this decision for our 1,800 acre farm.

graph showing total cost of ownership for a john deere combine

Different combines with different hours can make a massive difference in total cost of ownership!

The Bottom Line

When John considered all the costs noted above, this represents a pretty big decision for his farming operation. At the end of the day, it worked out to over $115K difference in Total Cost of Ownership if he bought the S770 with 300 separator hours!

For him, trading in his old combine for a lower-houred combine of the same model is likely the best choice economically. While it may not have been what he was wanting, he’s a practical guy and that’s what he’ll probably end up doing.

Bigger, newer machines theoretically mean newer/better technology and increased efficiency. It’s always tempting is move to a newer model and lower hour machine – and we get that. We made a lot of assumptions in John’s case. You’ll need to adjust some of these numbers to fit your operation, too. Repairs and down time are a huge cost to consider. Furthermore, fuel costs will likely go up. But at the end of the day, you’ve got to consider actual combine depreciation cost based on resale/trade-in value. It makes a huge difference!

Chart above shows all Auction Results from IronComps.com for John Deere Class 7 Combines in Dollars ($) per Separator hour to illustrate combine depreciation as separator hours increase.

Machinery is the second largest and growing part of the balance sheet, next to land. In profitable times, it becomes pretty important to know how to balance the line between keeping your fleet current and letting upgrade costs get over the top.

So, how do you make sure you don’t make a $115K mistake? Always do the math, and never leave out the combine depreciation value!

Shop combines at auctions & dealerships nationwide!

Used Combine Values in 2021

2021 Case IH combine values

2021 Case IH Combines Values on Iron Comps

Are you looking to buy or price a used combine before the 2021 harvest? You and everyone else (and you better hurry)! The prices have jumped with the supply of all used equipment tightening, but not equally for all types of harvesters. This is where used combine values in 2021 have differed from used tractor values. In this Iron Comps Insights, the Tractor Zoom data for combine auction sales is broken down over the past four years to better understand the trend that is driving 2021 used combine costs.

If you prefer an in-depth guided tour of this set of Iron Comps data, the video below walks through how different auction markets are behaving for combine sales that have taken place between the months of January and August. This segmentation allows a comparison of 2021 sales with the prior years without the typical end of year spike in December throwing off the numbers.

The biggest takeaways from the video are directional.  The values in the middle of the 2021 used combine market have shifted up. Harvesters with 1,000 – 2,000 separator hours are now worth considerably more than they were a year ago. In the following graphs, the past four years are averaged out for this same set of months. This provides a clearer picture of what is happening to harvesters in the ranges of 0-750, 1K-2K, and 2K-3K separator hours.

Used Combine Values With Less Than 750 Separator Hours

Considering all the hype that used equipment values have received this year, one would expect low-hour, late-model combines to be leading that surge. Not the case. They are up over last year, but not to the extent that newer tractor values have risen.   We saw this in the video too. 2020 was a phenominal summer for combine sales, so the bar was set high. This year there just has not been the available volume of those premium machines, which may be driving farmers in need of a combine to look at ones with slightly higher hours.

Iron Comps' Combine Values with Separator Hours less than 750 in 2021
Iron Comps’ Combine Values with Separator Hours less than 750 in 2021

Used Combine Values With 1,000 – 2,000 Separator Hours

2021 appears to be the year for mid-hour combine sales.  With low availability at the lower hours combined with an extremely profitable crop in the field, farmers have justified bidding higher to make sure they are prepared for this fall.

Iron Comps' Combine Values with Separator Hours Between 1,000 - 2,000 in 2021
Iron Comps’ Combine Values with Separator Hours Between 1,000 – 2,000 in 2021

This $11,000 jump in value over a year ago equates to almost a 14% rise in value.  A significant driver of this increase is availability of combines. In our Tractor Zoom data, there have been 17% fewer combines sold in this range this year compared to last. This is despite the fact we’ve added 50% more auctioneers already this year, covering over 75% of the US auction market!

Part of this rise may also be level setting. You can see that values in 2018 and 2019 were a little closer to this year’s current average prices. A good reminder that valleys and peaks do not last forever.

Used Combine Values With 2,000 – 3,000 Separator Hours

In this final look, we increase the usage to include between 2,000 to 3,000 separator hours.

Iron Comps' Combine Values with Separator Hours Between 2,000 - 3,000 in 2021
Iron Comps’ Combine Values with Separator Hours Between 2,000 – 3,000 in 2021

The year over year average combine value increases $6,000. Approximately the same annual rate, 16%, as the previous graph. Unlike the previous hour segment though, the supply for 2,000 – 3,000 sep hour combines is closer to what we saw in 2020.

What Are Combine Values Going This December?

This is the big crystal ball question, right? With a few variables out there, like actual verse USDA projected yields, it is impossible to tell for certain. Yet, we can look historically to see what has happened before. 2019 was a tough, but relatively consistent harvest season. In that year the average used auction price of combines between 1,000 – 2,000 sep hours increased 13% in December (over the January to August values shown above). In 2020, that rise was 23%! Remember that commodity prices started to take off in September, so it was anything but consistent.  Whatever this fall brings, if you are looking to purchase, or find the the value of a combine, be sure to check Iron Comps. The most recent comparable sale in a turbulent market can be the difference between gaining or losing 5% of the value right out of the gate!

Used Combine Values and What the Recent AHW Dealer Auction Can Teach Us

Used combine values are a big concern for many this year.  This is especially true going into the high demand August market with a tight supply of farm equipment. Just last week we saw a significant sale with Sullivan’s AHW dealer auction on June 15th. The listing was heavy with harvesting combines, draper heads, plus a few late model tractors and sprayers. This auction provides a great look at the market’s direction when analyzed with our Iron Comps database.

With over 60 lots of AHW’s equipment sold, we chose just a few significant pieces to test against the current trendline. Used combine values may be the most intriguing for dealers to look at now so they can gauge what the market may look like in August during prime selling season. For those interested in tractors, headers, and self-propelled sprayers, I’ll be diving into those in some upcoming analysis. The good mix of both Hagie and Case make for a nice brand comparison of sprayers!

Case-IH 2377

Harvester sales at this Sullivan auction ranged from $61,000 for a 15 year old Case-IH 2377, to a 2018 John Deere S780 2WD valued at $288,000. In addition to studying these bookends, a 2017 S680 4WD was analyzed. It has relatively low hours and some bells and whistles worth looking at.

The 15 year old Case 2377 may temper an overly bullish outlook on this market. With just over 2,000K separator hours, this would have justified $55,000 based on the Separator Hours vs Price graph which trends 2019 and 2020 values shown below.

Case IH 2377 Used Combine Values
Iron Comps Values Case IH 2377 Combines

10% above expectation may seem bullish, but compare that to the most recent sale where a 3,000 sep hour model sold for $67,000. This reaffirms what we have been sharing about late 2020 and early 2021 sales. Most older machines are seeing a flat or modest single-digit year over year increase in expected values.

If you caught our 5 Trends for Equipment Dealers webinar last month, you will recall that used combine values had not yet seen the post-pandemic bump that tractors have been experiencing. Some of this delay may be due to the void of late-model machines on the market. This theory was tested with a relatively young 2018 John Deere S780 at the AHW auction, which brought the top combine value of $288,000. We will dive into that next.

John Deere S780

The entire auctioneers description for this S780 is as follows:

2018 John Deere S780 2wd combine, ProDrive trans., ContourMaster feederhouse w/CommandTouch 5 spd. drive & hyd. fore/aft, 28.5′ unload auger, PowerFold bin extension, chopper, PowerCast tailboard, Active Yield, 650/85R38 drive tires and duals, 750/65R26 steer tires, LED lights, premium cab, 10″ display w/AutoTrac, Turn Automation, Data Sync, Implement Guidance, In-Field Data Sharing, Machine Sync, RowSense & Section Control activations, 899 eng./640 sep. hours, SN 1H0S780SJJ0801614

Our Tractor Zoom database has a significant number of these S780 for a quality comparison. In the  bottom bar graph below you can see a slight year over year average price increase in the S780 values. Because of all the variables in play we need to look at closer comparables to truly judge market movement. In the top graph, the orange square represents where this AHW combine ranks in terms of separator hours and sale price.

John Deere S780 Used Combine Values
Iron Comps Values of John Deere S780 Combines

Our AHW S780 is on the top end of expected values for its hours when compared to the past three years. High, but certainly not an outlier. Below we drill down even further into a look at two specific comparables. The first screenshot of Iron Comps Auction Results surfaces the most recent sale dates and closest hours. This view indicates that used combine values may have hit a ceiling.

John Deere S780 Combines Sold In 2021 Between 500 And 700 Sep Hours

However this does not indicate the market is reversing by any stretch of the imagination. Below the next image narrows down the search to the two closest sep hour comparables. Both sold in the combine flurry that was last August of 2020.

John Deere S780 Combine Between 600 And 700 Seperator Hours
John Deere S780 Combine Between 600 And 700 Separator Hours

You can see how much values have risen in just a year. From $249,000 average last year to $288,000 for this auction. A 15% jump!

John Deere S680

We have explored the top and bottom of used combine values in this auction. Approximately a 15% to 10% increase is seen, respectively, over last year. Let’s open it up and see if a mid-hour combine falls somewhere in between. A 2017 John Deere S680 4WD sold for $186,000 with just over 1,000 separator hours. Below is the full auctioneers description:

2017 John Deere S680 4wd combine, ProDrive trans., ContourMaster feederhouse w/CommandTouch 5 spd. drive & hyd. fore/aft, 26′ unload auger, chopper, PowerCast tailboard, bin extension w/tip-ups, 520/Interactive Combine Adjust, ActiveYield, LED lights, premium cab, 1,445 eng./1,071 sep. hours, SN 1H0S680SPG0795113

Comparing our S680 with other 2021 sales, the value is in line with others in the TZ database. A great comparison, pictured below, sold in late March of 2021 at a consignment auction in Minnesota for $200,000.

John Deere S680 Comparable Value for $200,000
Iron Comps S680 Combine Values

While this comp does have a refrigerator, the other options are similar and reinforce the theory that 2021 values may have hit a top and stabilized for now.

Iron Comps has the ability to filter by hours and auction type. Using this we can slice data to consist of only S680’s between 900 – 1100 hours sold at dealer auctions. Contrasting these historic equipment values, this AHW combine’s sale price exceeds 2019 and 2020 values by about 30%.

Comparable John Deere S680 At Dealer Auctions Between 900 And 1100 Hours
Comparable John Deere S680 At Dealer Auctions Between 900 And 1100 Hours

Used Combine Values in 2021

Big movements in used equipment values tend to coincide directionally with significant commodity price changes. With the exception of wheat, current cooling of the corn and soybean markets may be tapping the brakes on the rising used equipment values we have been riding over the past eight months. Another major factor at play will be the necessary demand of combines prior to this fall. Will a tight new and late model supply force prices even higher? Will downward pressure of the grain markets have any effect?  To answer these questions keep your Iron Comps app open and your eyes on the most recent sales!

John Deere ProDrive: Worth it in used combines?

John Deere ProDrive S670 Combine
Does it make sense to look for a used John Deere ProDrive combine? Hit the photo to browse combines at auction!

The Backstory

Not too long ago, my buddy Dustin and I were working on his S670, getting it ready for harvest. He’s a farmer in northern Iowa, and his combine is getting up there in years. He was debating over whether to continue to repair it, trade up to a different used model, or buy a brand new one. Dustin knows his equipment better than just about anybody I know, but I could see that his head was spinning. With so many options on the market right now, I’m sure he’s not the only one!

The Problem

One of the unknowns he was wrestling with was about the transmission. Is a John Deere ProDrive (essentially an IVT system) the way to go, or is a conventional 3-speed the better idea? Try Googling that question sometime; you’ll find so many passionate opinions on the ag message boards that you’ll give yourself a monster of a headache! Eric in western New York says, “ProDrive is a must have!” Two lines later a guy in southern Illinois comments that he absolutely hated the one he’s got now and he can’t wait to get rid of it!
While the debate still goes on, the general consensus is that ProDrive transmissions make better use of torque from the motor. In turn, that makes it easier to maintain speed in the field (especially useful in hilly ground like Dustin’s). The trade-off for the increased efficiency is that the option itself is more money when they’re new, they’re slower on surface roads, and depending on who you listen to, they’re a lot bigger headache when they break.
So, to try and help Dustin, I told him I’d do some analysis on it using our Iron Comps data to see what effect ProDrive had on residual value. I couldn’t help him weigh all of his unique pros and cons. That said, I do have access to a huge database full of farm equipment auction results. I knew that I could help him with the numbers aspect.

The Math

I’ll admit, I was curious as to how it would shake out. I knew there would be a “ProDrive Premium”. But at some point, I figured there would be a point where that started tailing off. I also wondered if there was a point where the 3-speed became a better option.
I made a call to a local dealer and found that an S670 with ProDrive sold for about $428K in 2015 (ProDrive was a $7K option). So with that baseline number, I went into our Iron Comps database. It’s powered by Tractor Zoom’s auction data, and captures over 55% of the market, more than any other source. We’ve got close to 150 S670 sales just within the past two years in the database. It’s a numbers game and the bigger the data set, the more confident we can be in our results.

Graph showing separator hours vs. sale price.
Separator hours typically have a large effect on combine values. The graph below shows how the sale prices fall as the sep hours increase. 
The table below breaks down the values even more into three scenarios of combines with 600, 1200, and 1800 hours. The first row shows the expected average value for ProDrive S670s. The second row is the expected value of a S670 with a 3-speed. The bottom ‘ProDrive Premium’ percentage is the amount that could be attributed to the ProDrive for that age of combine.
The results for the newer combine affirm what ProDrive advocates have been preaching. A ProDrive in our dataset with 600 separator hours should sell for about $185K at auction. Its 3-speed counterpart, just $163K! A difference of $22K (13% premium) is a lot bigger number than the $7K option when it was new! This indicates that there’s definitely a demand for these combines – especially those without a ton of hours!
As the combine ages, so does excitement for the ProDrive. So much that it is essentially negligible at 1800 hours. A likely explanation is the cost to repair a ProDrive, which older machines are more likely to need. Typical repair bills for out-of-warranty transmissions are fairly steep. Based on what I’ve heard, you could be looking at $25-30K to replace a shelled transmission. Not a small number. I can definitely understand why the premium starts to fall.
As one final check on this pro-ProDrive conclusion, I like to filter down by auction type. Retirement auctions tend to bring higher premiums. Consignment sales tend to be lower and represent the market value floor. The unexpected challenge I discovered was that few S670 3-speed combines hit the retirement market. Conversely, we haven’t seen a lot of ProDrives selling at consignment sales. I’m still working on determining why this happens.
I showed these numbers to Dustin the other day over a beer, and it pretty well confirmed what I think he needed to hear. When I left the shop, he was on his tablet browsing combines at Tractor Zoom, and I’m sure he’ll find a nice ProDrive S670 at a retirement sale somewhere.

A modified version of this article originally appeared on the Iron Comps blog a few weeks ago.

World Famous Bi-Rotor Combine Goes to Auction

Bi Rotor Combine

Auctions can be a great avenue to acquire one of a kind items, from collectibles to machinery. This time, it’s a machine that changed the course of the modern farming landscape!

The original Bi-Rotor Combine (XBR2) will sell in Burr Oak, Kansas at an auction hosted by Wolters Auction & Realty on October 29, 2018. The world lost one of its finest inventors, Mark Underwood, last summer. The auction will also include other machinery that he had on the farm, as well as the farmland itself.

Continue reading “World Famous Bi-Rotor Combine Goes to Auction”

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