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Question:
Drawing on the past and also in dialog with your customers this summer, what impact do you expect the drought to have on your business in 2013?
Answers (Leave your own thoughts in the comments section below):
“I will always remember 1988 as the year of the drought, and the year I got married (the two events are unrelated). The big difference between ’88 and this year for me is that business was just starting to pick up in the spring of ’88 after about three or four really tough years. Business in 1984 wasn’t bad for me, but ’85 and ’86 were brutal. In ’87 farmers were returning to prosperity without as much aid from the government. I had really high hopes for ’88 until June. I also had some real high hopes for 2012. High corn and soybean prices, soaring land prices, low interest rates and some genuine optimism in my local market lured me into thinking 2012 would be a repeat of the record shattering 2011. Then it quit raining.
June and July have been a real awakening as to how fast a market can turn in our business. We are still selling some equipment, but nowhere near the pace of last year. Most of the late model used equipment has slowed down and a couple of recent auctions have shown that the market is soft. That may all change this fall, but I feel that this drought is more wide spread than ’88 and recovery will take longer. I’m confident that we’ll be in the black this year, but it won’t be nearly as much fun as 2011.”
— Leo Johnson, Johnson Tractor, Janesville, Wis.
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“I got engaged in 1988. Really hate to admit, but I don’t think ’88 held a candle to this year. We just don’t have any corn in the field at all. Talked to a crop adjuster the other day and he said the best yield in our area was 1.5 bushels per acre. Yes it’s bad. We have even had people mow and bale soybeans already. Too hot, too dry, just didn’t set any pods. And to add insult to injury, guys just aren’t paying their bills. Our accounts receivable is at an all time high.”
— Jeff Suchomski, Suchomski Equipment, Pinckneyville, Ill.
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“Given favorable weather conditions in 2013, I expect sales to increase somewhat. The main reason for decreased sales this year is farmers have replaced and upgraded much of their equipment during the past few years, as well as rising feed cost for cattle.”
— Joe Wallace, Somerset Farm Equipment, Somerset, Ky.
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“My feeling is that it will, in most cases, positively affect large grain farmer’s gross income because 90% of them have revenue protection at 75-80% of average yield and the October target prices will be in the $7.50-8 range for corn. With gross revenue of $1,200 or above per acre for corn and all-time high soybean prices, farmers will simply do very well. The dealers will feel it mostly in the aftermarket areas since equipment utilization will go down with lower actual yields. From a psychological perspective, it is also a tough thing for producers to feel good about spending for equipment, but taxes and income will trump that over the next six months. One of the other keys will be moisture this fall. We will need that to feel good about next spring as winter snows will not help that much but it already appears that patterns are changing. The livestock producer will be affected the most with these higher prices since they will not be able to recoup the added feed costs in the market place and hay is also in very short supply. This will be interesting to watch red meat supplies as it plays out over the next six months.”
— Don Van Houweling, Van Wall Equipment, Perry, Iowa
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“Quickly ... all news is local. Drought in many regards is the same. We are devastated by the impact of drought to our ‘neighbor’ farmers. We currently have good crops, water and water reserves because of the previous two years of wet weather. Much (95%) of our business is to irrigated farmers. So the drought’s impact on commodity prices short term is a positive. We expected a drop in sales for 2012 from all of the over supply news ... 2011 was a record year for us and we are currently (YTD) 9% ahead of that for 2012. If we have a dry fall and winter, we will be devastated also and would expect a drop of 15-20% if such is the case. We were in the same situation in 1988 with similar outcome.”
— John Hoybjerg, CH Ag Inc., Twin Falls, Idaho
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“I am not in corn and soybean markets. What wheat that is in our areas is split between dry land and irrigated. We do have some dry land milo in South Texas, which had a good 2012 crop, and has enjoyed high prices. Texas has limited irrigation water so it gets passed to the most critical crop. In summary, I do not expect significant changes in our different markets. High prices which spill over from the Midwest drought disaster could help keep sales up.”
— Herman Wilson, Jr., Pioneer Equipment Co., Houston, Texas
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“We did not have a drought in eastern Ontario during the ’80s. This year, the drought has been more serious north of our business trading area so there has been no significant effect as yet. We have some farmers who are holding back on new tractor purchases waiting to see if they get enough yield to fill sold contracts. In general, most producers in this area are confident that they will have an average or acceptable yield with record pricing, so we are ordering like normal, thinking that business will go on.”
— Bob Weagant, Weagant Farm Supplies Ltd., Winchester, Ontario
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“Please remember, the Midwest of drought you refer to, is not your total sales reporting area. There are many areas of North America where rain and crops and cattle are doing well and are bountiful. Grain prices are up, cattle prices are very good, as a matter of fact heifers are almost beyond a price for a person to reasonably increase his/her cow-calf herd. Potato crops are excellent. In many areas, no irrigation is needed. So the drought is not affecting us here in Western Canada nor is it in most of Eastern Canada. The request for equipment prices is continuing good and sales have remained steady. Farm auction sales, good equipment is bringing very high dollars.
— Peder Lodoen, Peders Agri Services, St. Albert, Alberta
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“The drought of ’88 was not as severe as this year. Also, back then we were not coming off three of the best years ever. I look for some downturn in the ag machinery market the next 18 months.”
— Richard Straub, Tri County Equipment Co., Poseyville, Ind.
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“In the Pacific Northwest, we haven’t experienced the drought problems that the majority of the country has been enduring this summer. Just this week we’ve seen very hot temperatures that are just now beginning to start grass fires in the central areas of both the states of Oregon and Washington. My feelings are that sales for the remainder of 2012 will remain soft in my market area because of the slow economic recovery.”
— Jay Hayes, Rickreall Farm Supply Inc., Rickreall, Ore.
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“We expect 2012 to be down 5-8% due to the drought. And 2013 will be flat to down 5%. The southern half of our territory is affected by the drought declared counties.”
— James Sommer, Service Motor Co., Dale, Wis.
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“Combine sales are outside of our area of responsibility. But with crop insurance — just how severe is the loss in revenue or actual loss?”
— Al Parolini, Coastal Tractor, Salinas, Calif.
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“We are seeing a major increase in sales of vertical mixers and no-till drills (mixers to maximize available very valuable forages, and drills to replant pastures and fall planting of wheat for fall pasture). With a major decrease in cattle numbers from drought selloff due to lack of feed and water, I foresee very good prices for beef which would increase sales of tractors for plantings of grains due to forecasted high prices and many pastures will need to be replanted. The negative is uncertainty due to Obamacare regulations. If Obama gets re-elected, I have not talked to one farmer in four years that will be happy (including me).”
— Ron Ely, S&H Farm Supply Inc., Lockwood, Mo.
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“We are in our second year in a row of drought in Texas. Tractor business is down compared to 2009 and 2010. The only thing that is holding the retail together is strong commodity prices. If prices were to drop, it could be devastating to the overall ag market. I think sales in 2013 will be flat if markets hold due to high input cost and uncertainty in the global ag picture.”
— Earl Bourland, Mitchell & Bourland Inc., Terrell,Texas
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“Most of our ag customers have crop insurance, but that will just keep them going. A lot of crops are sold in the next year, so there will still have to be some year-end buying for tax deductions. Our large property owners and residential customers will reduce their buying because the high grain prices will effect all they do.”
— Richard Dorris, Wright Implement, Owensboro, Ky.
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“We are in Western Canada and actually have too much rain, not a drought. We also did not experience much sales increase after 1988. As for 2013, everything depends on crop prices. Sales will follow prices for us.”
— Gord Thompson, Moker & Thompson, Prince Albert, Saskatchewan
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“We had drought last year in Texas … much more severe than what has happened thus far in the Midwest this year. Of course, we don’t account for the grain production compared to the areas affected this year. We did see some hangover from last year’s conditions. However, we have experienced three drought years in the last few — ’06, ’09 and ’11. I don’t think a one-year drought will have a similar impact. In fact, it may enhance business due to higher commodity prices.”
— Terry Hlavinka, Hlavinka Equipment Co., East Bernard, Texas
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“Because many customers came into 2012 with grain to sell, they still may have tax issues this year. Some are purchasing crop inputs for next year, so we hope to sell iron yet this year. Some of our manufacturers are counting on higher grain prices and crop insurance as an offset. We are very concerned for the livestock farms hurting for feed. We see next year as tougher as they won’t have as much carry-over crops to sell in 2013. That cushion stored in the bins is nice. That being said, the seed genetics today are amazing and soybeans may be OK for some, with corn being hurt worse. Moving forward, it is hard to decide how much stock iron to order for 2013. We need inventory but don’t want to look foolish a year from now.
Even though I was in the business in 1988, I can’t remember how we reacted to the drought. In the fall of 1987, Case IH introduced its first flagship tractor after the merger, the Magnum 7100 series. They were well accepted and helped make 1988 bearable.”
— Steve Wells, Wells Equipment Sales, Litchfield, Mich.
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“The big difference from this year to 1983, which was almost total failure in our area, is crop insurance. I look for a very good fall for sales as there will be a lot of money to spend. I think next spring and summer sales will depend on both crop insurance and weather. If crop insurance remains close to what is now available, sales will be OK for 2013.”
— Alan Trenhouse, A.C. McCartney Farm Equipment, Carthage, Ill.
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“Not as wide spread as in 1988. Some areas hit harder than others. We did lose some new machinery sales due to drought. Most people will wait the year out and see how it goes and then make decisions on what to do about next year.”
— Jan Schraufnagel, Schraufnagel Implement, Lomira, Wis.
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“The drought is affecting buying in the short term. Sales have been slow with many producers saying they are waiting to see how their fall harvest turns out. Most farmers will have good yield history from the past four years and will still have good income from crop insurance in 2012. I look for increased buying in November and December after they get their insurance payment and find out how they are sitting financially. 2013 buying will all depend on the amount of moisture they get in the fall and winter months. I think buying trends will be localized by regions that either get good moisture and those that do not. These regions may only be 60 miles apart, with it all depending on the weather.”
— Sam O’Toole, New Frontier Ag., McCook, Neb.
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“I explain the increase following 1988 by the fact that many people held onto everything they had without spending funds, then turned loose of funds when pattern changed. They did not have large revenue crop insurance checks coupled with lucrative tax laws that our current farmers do. I predict a reduction in unit sales of large ag equipment. Many have updated equipment without much if any usage the past couple of years. They are sitting with prime equipment parked in their barns. They spent insurance money to avoid stiff tax burden. I predict an uptick in small ag equipment.”
— Jarrett Jameson, Western Equipment LLC, Tell, Texas
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“I think our sales will be better in 2013 with the short crop. It will give us good crop prices with the shortage of 2012 crop. If we had a 14 billion bushel crop this year, we would see corn price in that $3.50-$4.50. With the short 2012 crop, we have a good chance of having good prices for the next year or two. Also, crop insurance will be a big help.”
— Larry Southard, Southard Imp. Co., Marshalltown, Iowa
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“I cannot comment on the events of 1988 as I was not in the industry at that point in time. However, I have yet to hear any of my customers even mention next year, or how this year will affect it. From what they have expressed, they are more concerned with how this fall and winter will unfold. Hopefully, with some rain and cooler temperatures this fall and plenty of snow this winter to make up for some of the moisture that we failed to get this year.”
— Micah Tribelhorn, Scott’s Tractor & Implement, Smithville, Mo.
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“I can’t speak to the 1988 time frame, but I can speak to the effects of last year’s Texas drought. As you may recall, we were suffering under conditions not seen in over 50 years. Sales at the time were weak, and have rebounded very strongly this year now that we are out of the drought. The reason is simple, and I think it applies to 1988 as well. Poor weather often equals poor profits in business’ dependent on agriculture. Weak profitability increases caution and one way that is expressed is in the delay of investment in capital equipment. The demand or need for the equipment never went away, it was postponed. So in the period following a drought you not only see the demand for equipment for that time period, you also see the demand from the previous year that was put off, hence the increased sales in the period immediately following a drought.”
— Mark Kaiser, Kejzar Motors Inc., Nacogdoches, Texas
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“Looking back at our records, I see sales were up slightly in 1989 and 1990 but not significantly. I also noticed that gross margins were down compared to 1988, indicating we were cutting margins as an incentive to move inventory and keep a positive cash flow. I do remember ’88 as being hot and dry, but not to the extreme it is this year. I believe the market in 2013 will be determined by moisture conditions through the winter, if we go into spring of 2013 dry, sales will be reduced. If we start 2013 with adequate moisture, there will be a more positive outlook. Many of our customers seem to be in good condition because of carryover from the last three years that have been quite good. If the dry conditions continue through the winter and into the spring, I believe sales will be down, if we get normal moisture, business will continue to be level to slightly up.”
— Brad Gering, Freeman Implement Inc., Freeman, S.D.
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“I’m responding from northeast Colorado. The vast majority of our row crops are irrigated. Because of that, the financial success of our customers is affected more by commodity prices than by yield. We also are experiencing severe drought conditions, but we are going to have enough stored water to make a good crop for 2012. Therefore, with the drive up in commodity prices, our row-crop customers that irrigated their crops should have record incomes in 2012, and I predict that will result in robust demand for farm equipment in 2013. Also because of the drought and crop failures in the Midwestern U.S., there possibly could be a decline in demand for equipment in that region, causing an over-supply situation which will mean better discounts and pricing from the major manufacturers to keep their equipment from backing up in the pipeline. Record income plus deeper discounts equals Increased sales for 2013 in Northeast Colorado.
P.S. I probably will sell very little to my livestock producers because their bottom lines are going to be pretty dismal until grain prices recede, but their equipment purchases account for less that 20% of my sales.”
— Howard Wickham, Wickham Tractor Co., Sterling, Colo.
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“We had the early spring, followed by frost that took out much of the local fruit crop. Dry conditions following spring has had a dramatic impact on the hay harvest, both wet and dry, making many evaluate if they have enough to support their needs for the following months. Currently, the rains have returned, and the hay crops are starting to grow again, relieving some of the strain. It is always hard to evaluate the grain crop until it is in the bin. Many will evaluate how they depend on the market to supply their feed needs and look to grow more of their own. I agree with your thoughts that there may be an increase in the want, need for more, not sure what that will boil down to, tillage, combines, balers, tractors?”
— Gene Saville, Lamb and Webster, Springville, N.Y.
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“We were in a severe drought last year and most of our area is in EXTREME drought as we speak. This drought has lingered on and on and obviously it has negatively affected our business for the past several years. We do not sell combines, we are a rural lifestyle dealership. We sell tractors up to 120 horsepower, hay equipment and OPE. All aspects of our business have been adversely affected. The increase in business in the year or years after the 1988 drought were due to pent up demand for combines and cash grain equipment. That will likely happen again when this drought is over. We would expect to see a big improvement in our tractor and hay equipment sales as well as our OPE business when it starts raining again on a regular basis.”
— Mike McCrate, Tulsa New Holland Inc., Tulsa, Okla.
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“The drought of 1988 was as severe in our territory, maybe more so, as the 2012 year has been. The differences are first, the amount of media coverage of the event. In 1988, there was only the belated USDA reports, which are now laughable, but were not timely nor accurate then for sure. Today, we can follow day-by-day moisture conditions, national headlines, Ag Day and the farm press and wallow in our own stories of depression or elation. Secondly, farms are exponentially larger today, better financed, managed and INSURED. Finally, the drought of ’88 following the depressed prices of the mid ’80s, grain embargos, etc., was the straw that broke the camels back of small farms. Consolidation began with a vengeance demanding larger, higher tech, more productive machinery as the farms grew in size but not in labor units. Thus, machinery companies reaped a reward of big iron sales in ever increasing size.
“What will the ‘day after’ the 2012 harvest be like? Send me the name of the owner of the crystal ball of prognostication. We do not see the same conditions existing today, however we will see some record incomes from farmers who many not even crank their combines. We sold a header to a customer who said ‘I picked up the phone this spring thinking to cancel the premium insurance. I was sold, but thought, I bought it I will pay for it — and am I sure glad I did.’ He will be looking at a record net income due to the windfall of historic prices.
“That scenario is playing out across the heartland as I talk to other dealers; the farmers NOT in drought conditions are in corn/soybean heaven. Of course, a few do not have insurance, but they are in the minority. Cattle farms are undergoing major change. The ‘Graying of Agriculture,’ high cattle prices and the drought has led to record cow herd liquidations and pastures are being turned into row-crop fields where possible. Hay equipment is changing hands from farmer to farmer in the process in the mid-south bypassing dealers. There are few expanding and with the price of hay equipment, the ones left are pricing high-priced hay machinery and more and more are hiring their forage harvested by custom operators who have the latest, biggest and best equipment. This will be the trend much to the disappointment of many dealers who once depended on these weekend warriors who carried on a cow-calf operation that was a generational tradition.
“Mother nature cooperating, we can flood the grain market in one year with a bumper crop, it takes years to bring the cattle numbers back. Machinery sales are directly related to net farm income — follow the money — it will be feast or famine from one farm to the next. Our take is a big table spread despite the arid environment.
“The worst fallout will be public relations. I can see a Fox News, 20/20, 60 Minutes truck already cranked and running to a 85% insured farmer and reporting his million dollar crop insurance profit using tax payer subsidized premiums — not a sliver lining to an otherwise productive cloud.”
— Tim Bannon, B&G Equipment Inc., Paris, Texas
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“We expect caution until producers know what the impact is and what they have available for purchases. We know they will have less for purchases and the customers will prioritize their purchases.”
— Lee Rogness, RDO Shortlines, Fergus Falls, Minn.
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“I was out of the machinery business from 1985 until 1993, so I can’t say anything about 1988. As for now, the dealers in Wisconsin that I call on are cautious because over half of the state had half hay crop and corn is the same. If they have to buy expensive hay and corn, milk producers will really take it in the shorts again. Minnesota dealers are looking for almost average crops so they are selling what they can. I think the computer is going to cause a lot of shopping all over for dealers dumping inventory in bad areas to stop interest. This all adds new variables to this fall, winter and spring buying that we haven’t seen before. From the wholesale end, I’m just going to sell what I can and hope there will be additional spending in the spring if we get moisture caught up again.”
— Myron Dirks, Arts Way, Waverly, Iowa
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