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Reducing Investment Risk in Tractors and Combines with Improved Terminal Asset Value Forecasts

Author

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  • Unterschultz, James R.
  • Mumey, Glen
Abstract
Secondary asset market data for combines and tractors are used to estimate and separate out historical economic depreciation, embodied technological change and time value change. Combines and tractors generally exhibit constant geometric economic depreciation on a year to year basis. Depreciation rates vary by manufacturer. Farm investors can use these manufacturer specific depreciation rates reported here to estimate terminal asset values. The study found significant seasonal differences in machinery depreciation rates. A major source of error in forecasting terminal asset values comes from changes related to time. There is a predictable time component to the constant quality asset index that has not been investigated in previous studies. Unanticipated shocks to demand should be followed by price reversion to long-run average manufacturing costs as industry capacity adjusts to demand. This reversion component is predicable. Investment risk over longer planning horizons may be lower when both depreciation coefficients and time component estimates are employed.

Suggested Citation

  • Unterschultz, James R. & Mumey, Glen, 1996. "Reducing Investment Risk in Tractors and Combines with Improved Terminal Asset Value Forecasts," Staff Paper Series 24119, University of Alberta, Department of Resource Economics and Environmental Sociology.
    • Handle: RePEc:ags:ualbsp:24119
    DOI: 10.22004/ag.econ.24119
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    Cited by:

    1. Ivan Herranz-Matey & Luis Ruiz-Garcia, 2024. "Enhancing Predictive Accuracy in European Agricultural Tractor Residual Value Estimation: A Double Square Root Regression Reappraisal," Agriculture, MDPI, vol. 14(5), pages 1-19, April.
    2. Tozer, Peter R., 2005. "Depreciation Rates for Australian Tractors and Headers - Is Machinery Depreciation a Fixed or Variable Cost?," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137951, Australian Agricultural and Resource Economics Society.
    3. Ivan Herranz-Matey & Luis Ruiz-Garcia, 2023. "Agricultural Tractor Retail and Wholesale Residual Value Forecasting Model in Western Europe," Agriculture, MDPI, vol. 13(10), pages 1-21, October.
    4. Daninger, Nathan & Gunderson, Michael A., 2017. "The Pricing and Depreciation Patterns of Used Tractors," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258282, Agricultural and Applied Economics Association.
    5. Ivan Herranz-Matey & Luis Ruiz-Garcia, 2023. "Agricultural Combine Remaining Value Forecasting Methodology and Model (and Derived Tool)," Agriculture, MDPI, vol. 13(4), pages 1-15, April.
    6. Dumler, Troy J. & Burton, Robert O., Jr. & Kastens, Terry L., 2000. "Use Of Alternative Depreciation Methods To Estimate Farm Tractor Values," 2000 Annual meeting, July 30-August 2, Tampa, FL 21800, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Ivan Herranz-Matey & Luis Ruiz-Garcia, 2023. "A New Method and Model for the Estimation of Residual Value of Agricultural Tractors," Agriculture, MDPI, vol. 13(2), pages 1-20, February.
    8. Ivan Herranz-Matey & Luis Ruiz-Garcia, 2024. "New Agricultural Tractor Manufacturer’s Suggested Retail Price (MSRP) Model in Europe," Agriculture, MDPI, vol. 14(3), pages 1-21, February.
    9. Troy J. Dumler & Robert O. Burton & Terry L. Kastens, 2003. "Predicting Farm Tractor Values through Alternative Depreciation Methods," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 25(2), pages 506-522.
    10. Luis Ruiz-Garcia & Patricia Sanchez-Guerrero, 2022. "A Decision Support Tool for Buying Farm Tractors, Based on Predictive Analytics," Agriculture, MDPI, vol. 12(3), pages 1-26, February.
    11. Trautman, Dawn & Jeffrey, Scott R. & Unterschultz, James R., 2012. "Beneficial Management Practice (BMP) Adoption -- Direct Farm Cost/Benefit Tradeoffs," Project Report Series 139638, University of Alberta, Department of Resource Economics and Environmental Sociology.

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    Keywords

    Farm Management;

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