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From the Desk of Dave Kanicki: December 10, 2013

From the Desk of Dave Kanicki

8 Critical Factors to Watch in 2014

December 10, 2013

I’ve received enough calls in the past 2 weeks to recognize that there’s a lot confusion about exactly where the farm equipment business is heading in the next year. Of course, I’m always happy to share my confusion with others who are even more confused than me.

Just this morning alone I’ve heard from an analyst in New York and a banker in Toronto asking what we’re seeing in terms of equipment sales. Fortunately, I’m in touch with enough dealers and with ongoing surveys, we can provide some direction and identify some telling trends that the callers find helpful.

On the other hand, I tend to go back and review what Professor Mike Boehlje told me earlier this year and that I wrote about in the June issue of Farm Equipment. (See Is Agricultures Current Prosperity Sustainable? June 2013)

At the time, the distinguished professor in Agricultural Economics and the Center for Food and Agricultural Business at Purdue Univ., provided us with “8 Critical Factors to Watch.” These included:

  1. World income growth
  2. Expansion of biofuels
  3. Value of the U.S. dollar
  4. Weather-induced crop shortages
  5. Rising input costs
  6. Rising interest rates
  7. Growing worldwide competition
  8. Government policies

Without rehashing Mike’s entire message here, just pick a few of these factors and take a look at where things stand today vs. a year or so ago. Let’s start with biofuels, since my inbox has been stuffed with news about ethanol the last few weeks.

The fact of the matter is the ethanol situation isn’t looking particularly good at the moment as EPA has proposed reducing the mandatory requirements for ethanol production and use. While a final decision is yet to be announced, unless and until the country buys into E15 (15% ethanol) in a big way, the corn-based fuel additive has literally and figuratively hit the “blend wall.” The chart below tells a big part of the story. And with all of the anti-ethanol special interests cranking up the pressure on EPA to reduce the mandatory requirements, it’s going to be difficult to count on much growth here.

The chart below tells a big part of the story. And with all of the anti-ethanol special interests cranking up the pressure on EPA to reduce the mandatory requirements, it’s going to be difficult to count on much growth here.

How about rising interest rates? Two headlines I’m looking at as I write this include: “Fed’s Bullard says probability of taper next week has risen;” and “Stock gains shrink as Fed officials broach note of ‘QE’ taper in December.” When the Fed’s start tapering, interest rates will start rising.

And then there’s growing worldwide competition. After years of growth, according to USDA, in the 2012-13 marketing year Brazil was the world’s largest corn exporter, displacing the U.S., which has pretty much always been the king of the hill. And Argentina is nipping at our heels when it comes to soybeans. While the U.S. will probably regain its position with corn and retain its spot with soybeans in the next few years, we’ve been put on notice that there are some strong competitors out there.

Let’s not get started on government policies! If anything does the U.S. ag business in, I suspect it will be our friends in Washington D.C.

So what do I tell the callers who want to know what I know. I tell them what dealers tell me. Farm equipment sales will probably decline somewhat in 2014; probably not a lot. But if we’re going to compare next year’s sales to the past few years of really high sales, in all likelihood there will be a drop off. Based on our most recent dealer surveys, that would be anywhere from 1-5%.

And then I wish them Happy New Year!

Dave Kanicki
Executive Editor
Farm Equipment
dkanicki@lesspub.com
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