May 15, 2012
If you were to pay attention only to monthly sales figures from AEM, you would probably come away seeing North American retail sales of tractors and combines slipping during the last few months. And you would be correct. AEM provides a great service and as an equipment dealer, you need to concern yourself with monthly sales. But you know and I know the monthly numbers don’t tell the whole story.
In my position with Farm Equipment, I have the luxury of taking a broader look at the numbers and then factor in other available data that many dealers don’t have the time to gather and digest.
In the Ag Equipment Intelligence item in this issue of E-Watch, (Ag Equipment Fundamentals Still Not Well Understood) Ann Duignan, machinery analyst for JP Morgan, points out how just looking at the monthly numbers can sometimes lead to short-term reactions.
There's other data out there that can also clarify significant industry trends. For example, a recent Reuters' report from the Federal Reserve Bank of Kansas City's quarterly report on national farm lending indicates that loans for farm machinery and equipment remain at a high level. According to the Federal Reserve report, during the first quarter of 2012, farm equipment loans reached $6.9 billion, which was near the peak demand of $7.1 billion in the first quarter of 2011.
"U.S. Agriculture Department projections estimate U.S. farmers' net assets will rise above $2.2 trillion in 2012, as grain farmers, buoyed by exports and ethanol continue to retire debt, expand land holdings and upgrade equipment including: combines, planters, on-farm storage bins and irrigation systems," according to the report.
It went on to say, commercial loan demand from farmers might be understating the strength of their buying, as many are buying with cash. Loans direct from the suppliers may also be trimming the need for private bank loans.
Overall, strong farm income combined with record farmland prices — up as much as 40% last year despite the large number of farms for sale — kept loan demand from crop producers flat heading into the planting season, the Fed report said.
On top of it all, “ag banks in 2011 posted their 'best financial performance in three years,'" the Fed said.
"The average rate of return on equity at agricultural banks rose to 9.3% in the fourth quarter, well above the 3.8% reported for other small banks. In addition, the percentage of agricultural banks with negative income as a share of average equity fell to a 4-year low."
So, while tractor and combine sales in the past few months have shown signs of slowing compared with last year, there's plenty of other evidence to indicate the overall industry remains in good shape and is poised for solid sales during the year ahead.