PR - ECONOMIC DEPRECIATION: EVIDENCE OF CHANGE FROM HIGH MARGIN TO LOW MARGIN PERIODS

Abstract:
Strong returns for US Midwestern field crops from 2006 to 2012 together with favorable tax incentives (bonus depreciation and Section 179 expensing) led to strong demand for new and used farm machinery and equipment over this period. The subsequent  period (2013 to present) of lower crop prices and profit margins has led to relatively weaker demand and lower market values for used farm machinery and equipment. These lower market values for farm machinery and equipment sales and trade-ins have created a higher rate of effective economic depreciation for this machinery and equipment compared to the previous high profit period.
An analysis of farm machinery and equipment sales data from the online used farm equipment sales platform, Machinery Pete, allows us to examine the change in resale prices of used farm equipment over the period of profit margin change from 2002 through 2015. Change in resale price per unit and price per-hour-of-use of eight tractor models over this time series shows a change in economic depreciation. Farm machinery and equipment were found to have a lower resale value per unit and per-hour-of-use and therefore higher effective economic depreciation in the period of lower profit margins from 2013 through 2015.
Keywords: depreciation, economic, machinery, per hour, change