The new reality in farm auctions

In his blog this week, Lee Hart takes a look at the pending Viterra takeover deal and ponders this question: when does big business become too big for its own good?

Shortly after I read Lee's blog, I came across another reminder that all businesses seem to be getting bigger. A press release from Ritchie Bros. auction company proudly stated that firm had just broken its single-day record at an equipment sale. The company's permanent site in Brisbane Australia saw U.S. $54 million worth of machinery sell in a one day. That surpassed its previous record by U.S. $20 million over a sale held in Minneapolis, Minnesota, in 2006.

The press release said there were over 1,600 on-site bidders at the Brisbane sale along with a host of others registered on-line.

As I think back to farm auctions I attended as a kid in the 1970s, those events that saw 100 or so people gather seem to have little in common with today's sales where proceeds now figure in the hundreds of thousands or millions of dollars. The average farm auction now has a staggering value of equipment in the lineup. Bidders don't even have to actually show up at the sale site to buy something. Many machines are sold to faceless internet buyers known to the crowd in attendance only by their bidder number.

It's clear this growth in auction size isn't any more likely to go away than the trend of international grain companies continuing to get bigger. The number of auction companies has declined as has the overall number of sales held each year. There are a few big players now, but Ritchie Bros. is emerging as a dominant force, using its permanent sites to host mega events around the world at regular intervals.

These large sales have even changed the way equipment deals are made. There are many more reasons for selling equipment through auctions now than there used to be. Dealers frequently liquidate inventory or acquire it through auctions. Farmers can opt to negotiate cash-only agreements on new machines at a dealer and use these large auctions to move their old machines. Apparently, at least a few now do exactly that.

I've spoken to a couple farmers that have gone that route and they liked how the numbers worked out. But they did have to accept some risk by putting their used machines into an unreserved sale. Selling prices are rarely guaranteed. But auction companies argue that risk for sellers isn't what it used to be, because they now use technology to reach a much bigger group of potential buyers than they could a couple of decades ago. The broad reach auction companies have and the new trends in the industry seem to be equalizing selling prices and machine availability across the country.

Equipment sold in one province or U.S. state may head directly to another, or even to another country. Long gone are the days farmers would only attend auctions sales close enough to allow driving home that new tractor or combine in a few hours, which made sale prices subject to regional influences.

Those of us that saw auctions as a way to pick up some cheap, older machines or newer equipment at wholesale prices are seeing those opportunities diminish.

Has big in the farm auction business become too big? Clearly, it depends on your point of view, the scale on which you operate and what you expect to buy and pay for anything you acquire at one. Along with those reduced opportunities for bargains come new ones, providing benefits in other ways. And if you're selling, that might be a different matter entirely.

How do you see things?

Scott