Original Equipment Manufacturers (OEMs) are forecasting another good year for farm machinery sales. According to the Association of Equipment Manufacturers’ (AEM) twice-a-year business barometer, the vast majority of companies expect “positive” to “very positive” results for sales revenues in 2013. The exception is the livestock sector, which is bearing the brunt of higher feed prices.
Charlie O’Brien, AEM’s vice president, ag sector, was not able to comment on sales figures. But he says a big driver of equipment sales is net farm income, which the USDA estimates will reach a record high of $122.2 billion in 2012, up 3.7% from last year. “Also, farmers have had several good years in agriculture,” O’Brien says. “Their debt ratio has come down and continues to be at relatively low levels, so their balance sheets are still in pretty good shape.”
Dealers are expressing similar optimism. According to Ag Equipment Intelligence’s (AEI) 2013 Dealer Business Trends & Outlook report, the majority of dealers surveyed expect sales revenues to be at least “as good as” or “better than” sales levels in 2012, citing 4-wd tractors as their best revenue prospect.
Wild cards include future crop prices, the policies of newly elected leaders, changes in machinery replacement cycles, and the number of growers taking crop insurance payouts in place of a machinery deduction.
High demand for machinery is expected to drive up prices, which most dealers estimate will be between 1 and 6% for new machinery orders, according to AEI’s survey. Dealers say higher equipment prices are their number-one concern going into 2013.
Dave Kanicki, AEI’s executive editor and author of the report, says dealers’ concern about pricing is a reflection of price hikes they’ve seen over the past few years, including the 7 to 11% increases from Tier 4i engines. “It’s more of an accumulative effect that they’re concerned with rather than immediate increases,” Kanicki says. “New, top-of-the-line combines are approaching or exceeding $350,000. Dealers have told me that as long as corn and bean prices remain elevated, they’re probably okay. But if they see a deep decline, farmers will balk at the high prices for new equipment. Even with these higher prices, dealers say their margins on sales of high-horsepower tractors and combines remain pretty slim.”
Gary Schnitkey, University of Illinois ag economist, also expects machinery prices to rise in 2013.Schnitkey has adjusted his 2013 Illinois corn and soybean budgets to reflect a $42/acre depreciation, up from $39/acre in 2012.
“Overall, demand for machinery is good, leading to continued machinery purchases, maintaining upward pressure on prices,” Schnitkey says. “Purchasing additional inputs now may be warranted, particularly if tax planning indicates that 2012 taxable incomes are going to be high.”
Jim Farrell, president and CEO of Farmers National Company, Omaha, Neb., expects that tax planning likely will affect buying decisions in light of this year’s high farm income levels. “Cash is king in any operation,” Farrell says, “and if farm operators can protect their cash position and still purchase needed machinery, many will make the purchase.”
Some manufacturers are working on year-end programs that will provide discounts on purchases to soften the cost of new equipment. “A lot of 2011 grain was sold at record prices in 2012,” says Tom Evans, Great Plains Manufacturing. “High prices coupled with section 179 and 50% bonus depreciation should make for some pretty good ‘year-end’ buying. Even producers with short yields due to the drought are positive because most are fairly well insured. These year-end programs will hopefully generate enough sales to take us well into the second quarter of 2013.”
Manufacturers and dealers say they expect to have a good supply of both new and used equipment in 2013. Dealers surveyed in AEI’s report expect the wait times to receive a high-horsepower tractor or combine will be between four and nine months once an order is placed.
Manufacturers estimate similar wait times, between one and six months, says AEM’s O’Brien. “When we look at October of last year compared to October of this year, the length of time for delivery of equipment has been reduced a great deal,” O’Brien says. “In some cases, we were stretched out to a year last year. Now, that time is cut in half. So we are in much better shape in terms of supply.”