Dealers' Sentiments Turn Sharply Positive for 2011
Rising commodity prices, projected improvements in farm net income and cash receipts are boosting dealers’ confidence for the year ahead.
Dave Kanicki, Executive Editor
For full list of articles from the Oct./Nov. Issue, click here.
How North American farm equipment dealers view prospects for increasing sales in the coming year is in stark contrast to what they anticipated just a year ago.
Last year at this time, more than 40% of the equipment retailers surveyed for Farm Equipment’s “2010 Dealer Business Trends & Outlook” report expected sales revenues to decline by 2% or more. Only a quarter, or 24.4%, saw business levels improving by 2% or more for 2010.
As they look ahead to 2011 selling season, nearly half of farm equipment dealers see sales revenues for new machinery improving by at least 2%. Add in those who are projecting sales to be about the same as they were in 2010, and that number rises to more than 80% of dealers who believe their sales revenue will come in at least as good or better than what they experienced in the past year. That’s a nearly 180-degree turnaround from dealers’ sentiments a year ago at this time.
The most intriguing factor that could affect equipment sales this year is the impact of the new Tier IV engines that will be utilized in most high-horsepower (174 horsepower plus) farm equipment being rolled out for 2011. Dealers still don’t seem to be comfortable with these new engine developments, and if dealers aren’t confident, this will be reflected in how their customers view the new machinery. (See Tier IV: Increasing Tier III Sales in 2010 Or A ‘Fly in the Ointment’ for 2011?’)
In addition, manufacturers have discussed price increases ranging from 4% to 9% or more for equipment with Tier IV engines. Add that on to the base price of a high-horsepower tractor and it’s significant enough for farmers, if they haven’t already bought Tier III tractors, to delay major equipment purchases until they’re confident the technology is proven to be reliable.
Then vs. Now
At this time last year, commodity grain prices were bouncing all over the place, but heading mostly lower. Prices received for livestock and dairy products remained below breakeven for most ranchers and dairymen. This doesn’t appear to be the case for 2011 as the USDA is projecting that, after declining more than 20% in 2009, all three major measures of farm sector earnings will rise in 2010. (See “USDA: All Signs are Positive for 2011”)
So, it wasn’t surprising that a year ago dealers’ overall forecast for new equipment revenues was flat at best. And that’s essentially what happened during this past year.
Last year, 42.6% of dealers expected revenues from new equipment sales to drop 2% or more compared with 2009. The weighted average of last year’s forecast was –1.46%.
An examination of tractor and combine unit sales through August of this year vs. the same period in 2009, shows the dealers were pretty much on the mark, through adjustments for real dollars likely showed a better year than expected.
According to the Assn. of Equipment Manufacturers, U.S. unit sales for all farm tractors through the first 8 months of this year are up only 2.5% compared with the same period of 2009. Unit sales of tractors in Canada rose only 0.1% through August vs. the same 8 months of the previous year.
U.S. unit sales of combines through August of this year increased by less than 2% vs. 2009. Canadian combine sales are up 2.5% in August compared to the first 8 months of last year.
This year, only 19% of the nearly 300 dealers participating in the 2011 dealer survey are projecting lower sales revenues for 2011 vs. 44.6% in 2010. That’s a swing of 25.6% to the positive side of the ledger.
The percentage of dealers who are forecasting improved sales revenues of at least 2% for 2011 essentially doubled, from 24.4% last year to 47.9% for the coming year.
In total, last year 57.4% of the equipment dealers surveyed expected sales to be as good or better than the previous year. This year’s survey saw that percentage grow to 81% of dealers who believe 2011 revenues will equal or surpass those seen during the past year.
Strong Used Market
Dealers are also confident about their prospects for increasing revenues from sales of used equipment in 2011.
Slightly over 85% of the equipment sellers surveyed anticipate that sales of used machinery in 2011 will be at least as good as in 2010. Nearly 52% of those say they expect sales to improve by 2% to more than 8% for the year. Only 19% expect lower revenues from used equipment sales during the next selling year.
This compares to more than 30% of dealers, who a year ago expected lower revenues from sales of used equipment. Last year at this time, only 28.5% were forecasting improved revenues from the sale of previously owned farm machinery.
Top Product Picks – 2010
Anyway you look at it, North American farmers are rapidly moving into the age of precision agriculture. As it has been since Farm Equipment initiated the Dealers’ Business Trends & Outlook survey in 2005, the GPS/Auto-steer product category continues to top the list of equipment that dealers believe is their best bet for increasing unit sales in 2011.
The GPS/Auto-steer market ranked #1 in terms of the percentage of dealers seeing as good or better unit sales (94.2% of dealers say so). It was also the most bullish of product categories seeing the greatest growth prospects, as 56.1% of dealers expect sales of 2% to more than 8% .
The range of precision ag products continues to increase each year. At this year’s Farm Progress Show in the first week of September, Farm Equipment editors conducted an informal poll of precision ag companies to determine the fastest growing precision products. The general consensus is the auto-guide equipment remains at the top of farmers’ lists for purchase, especially as cellular transmission technology is being adapted to off-road auto-steer systems.
The next category for adoption is almost any precision technology that can be adapted to planting. The manufacturers say that growers are most interested in the precision placement of seeds to avoid skips and doubles, especially considering rapidly rising seed costs.
Next on the list is spraying. Auto-booms with sectional on/off capabilities are also what farmers are looking for. Again, they say growers are looking to reduce input costs and gain any edge they can get to increase per-acre yields. Manufacturers say investments in planting and spraying are very easy to justify because growers can easily quantify the results.
Along with the increased yields come challenges with increased plant residue. So, it shouldn’t be too surprising that a couple of tried and true tillage tools ended up as #2 and #3 on this year’s “Best Bets” list. Almost 90% of dealers surveyed projected that sales of disc harrows and field cultivators will be as good or better than they were in 2010.
It appears that the rural lifestyle market may finally be seeing light at the end of it 3-year downturn. Lawn and garden equipment, which was #17 on dealers’ list last year, moved all the way to #4 for 2011. For 89.7% of survey respondents, lawn, garden and turf products offer solid potential for improved unit sales during the coming year. Some 37% of dealers believe sales of this equipment will increase by 2% to more than 8% in 2011.
The same number of dealers (89.7%) are projecting that sales of mower-conditioners will be as good of better than they were in 2010. At the same time only 14% say they expect their sales to increase more than 2% during the next selling season.
While unit sales of tractors of all categories remained in the bottom 10 on the dealers’ “Best Bets” list for 2011, they all showed promise for increased unit sales.
In terms of the “as good or better list” for 2011, 2WD tractors (<40 horsepower) finished #12, but it ranked #8 by dealers who expect their sales to improve 2% or more in the next year.
In fact, while 4WD tractors was ranked #16 when it comes to unit sales being “as good or better than 2010,” it finished #2 in terms of increased sales, as 47.5% of farm equipment dealers believe their sales will increase by at least 2% next year.
‘Hot Button’ Issues
Despite the dealers’ optimism for a much better than average 2011 sales year, several industry wide issues concern them. Like last year, the rising cost of new equipment continues to cause the most anxiety.
As one Texas dealer recently told Farm Equipment, “The average consumer, with whom we are doing most of our business, does not want, nor do they understand, all the bells and switches that come ‘standard’ on equipment today, but they’re all built in to almost every new tractor and adds to the cost farmers must pay.”
The other concerns that are most vexing to dealers are pretty much the same as last year. Affordability of health care rose from #5 in 2010 to #2 this year. Farm input costs were fourth last year and finished #3 for 2011. Farm commodity prices were #2 on dealers’ list last year but dropped to #4 this year. And energy and fuel costs, which was ranked the #3 dealer concern for 2010, slipped to the #5 slot for the coming year.
Making the biggest leap of dealer concerns for 2011 is new equipment availability, moving from #15 to #8.
Many dealers have complained for the past couple of years about their inability to secure new equipment from the major manufacturers. Industry observers say there are several factors at work that are aimed at changing how and when farm equipment customers and dealers do business.
The first and foremost is the major equipment maker’s aim to discipline dealers and customers to order machinery earlier. They’re also pushing dealers to pre-sell more of the big equipment. Dealers, in turn, are pushing farmers to do more planning and do it earlier than most are used to.
This not only helps manufacturers “smooth out” their production schedules throughout the year, but it also reduces the amount of inventory on dealers’ lots.
This, in turn, eliminates much of the discounting dealers have done previously to move equipment before floorplan interests kick in. Dealers are also incentivized to pre-sell by manufacturers offering early-order and volume discounts.
It’s a balancing act that many dealers — and farmers — have yet to either accept or perform.
The issue that dropped the most as a matter of dealer priority is industry consolidation. Ranked #7 last year, it fell to #12 going into 2011. But rather than taking on less importance for dealers, it would appear that other issues have simply become more urgent when put up against longer-term problems like dealer consolidation. Or, possibly, more dealers are accepting that the trend toward fewer owner-operators is a foregone conclusion.
More Spending & Hiring
Dealer confidence going into the new selling season is also reflected in their plans for investing in capital projects and hiring for 2011.
Compared to 2010, nearly 13% (43.8% in ’10 vs. 56.5% in ’11) more dealers expect to increase their capital expenditures in their stores during the next year, and they intend to spend more than they did last year.
Nearly 47% say they’ll increase spending by 1-5% (vs. 33% last year), and 7.4% intend to increase capital spending by 6-10% (vs. 6.1% in ’10). Only 2.5% expect to increase capital expenditures by 11% or more in 2011. That’s down from 4.7% who projected last year that they would invest 11% or more in their operations.
At the same time, a larger percentage of dealers say they’ll invest in each of the major areas of operations during the next 12 months.
As usual, the shop and service areas of dealerships will receive the most attention as 48.7% of survey respondents expect to up spending to improve their service operations. This compares with 38.6% who said they were going to increase shop and service investment in 2010.
Business information systems are next on the dealers’ list when it comes to increased investment. This year, 41.2% of the survey respondents say they’ll invest in computer systems. This compares with 35.2% last year. Retail and showroom areas will see some improvement during 2011 as well. Slightly more than 39% of dealers say they’ll invest in improving these areas of their businesses compared to only 24.6% last year.
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In terms of hiring, more dealers report that they’re planning to add staff during the next 12 months. And each major dealership department should see increases to their payrolls.
As has been the case for the past 5 years, dealers will direct most of their attention to finding more talent for the service operations. More than 56% of dealers say they’re looking to add service techs to the payrolls this year vs. 34.6% last year.
Survey respondents also say they’ll also be looking for more wholegoods salespeople in 2011. Nearly 27% of them are looking to add to their salesforce compared with only 16.4% who said they wanted to hire more salespeople last year. Slightly over 25% of dealers are also looking to increase staff for the parts counters this year vs. 15.7% who were looking add people in this department a year ago.
More dealers are also planning to increase their administrative and office workforce in 2011, but these areas won’t receive a lot of attention. Only 8.2% of dealers plan to increase office staff this year, but that’s up from 5.7% who were planning to do so a year ago at this time.
Don't forget to read the two pieces accompanying this article:
Demographics of Survey Respondents
Nearly 300 dealers from the U.S. and Canada participated in Farm Equipment’s 2011 Dealer Business Trends & Outlook survey. The charts below show breakouts of the survey respondents by percentage of revenue derived from market segments served, responses by mainline supplier and average dealership employment size.
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