Compared to 3 months ago, slightly fewer North American farm equipment dealers see their prospects improving for increased new machinery sales revenue in 2009 compared to the previous year.
At the same time, they point out that it would be difficult, at best, to match the sales levels they saw in 2008, a period many of them call a "generational year."
AEI conducted a survey of North American farm equipment dealers during the last week of April to gauge their outlook for the rest of 2009 vs. 2008. This was a follow-up to a poll taken in January. Overall, 6% fewer dealers expect 2009 sales levels to be as good as or better than those they saw in 2008.
In the January survey, 48% expected revenues to match or surpass levels reached last year. This slipped to 42% in the April survey. Surprisingly, a bigger percentage of dealers see sales rising 8% or more in the April survey (8.4%) compared with the January survey (6%).
On the other side of the expectations range, 7.7% of dealers see business declining by 8% or more now (36.7%) than saw it falling that much in January (29%). These swings in dealer sentiment can be attributed to the "anticipation" of January vs. the "actuality" of April when the busy planting season arrives.
In January, many equipment retailers were feeling the glow of a very strong pre-selling season. It would appear that the dealers have a clearer picture now of what to expect for the remainder of the year.
1st vs. 2nd Half. What might appear to be an anomaly in the results of the April survey is that, on the whole, more dealers see revenues for second half of this year surpassing those for all of 2009, especially with pre-sales from late 2008 being realized in early '09. Overall, 45.4% of dealers expect new equipment sales to be as good as or better in the last 6 months of the year compared with 42.5% who say they expected the entire year to be as good as or better than 2008.
This apparent discrepancy is the result of the survey questions themselves. In the first question, forecasted revenue for 2009 is compared to actual revenues for 2008.The comparison is difficult because 2008 was such an exceptional year for farm equipment sales. Almost anything in comparison will appear much weaker.
The second question involves projections for the first half of 2009 vs. the second half of the year. The first 6 months of this year was marked with the persistent uncertainty about the overall economy, and lingering effects of the much-higher input costs farmers experienced in 2008.
With the exception of some fertilizers and seed prices, generally input costs have fallen significantly from last year. Also, grain prices — while not approaching the record highs seen last summer — remain above the average in almost all categories, giving farmers and equipment dealers confidence that the year will produce solid results.
Low Cancellations.While concerns cropped up about the possibility of farmers backing away from equipment ordered in '08, dealers haven't seen a trend develop. On the whole, only 18.1% of dealers say they've experienced cancelled orders to a significant degree, which is defined as 5% or more orders placed.
This compares with 13.6% in the January survey. A full 26% of respondents noted that they did not lose any orders to cancellation through the first 4 months of the year. Of those that have experienced customers withdrawing machinery order s, 81% report they've lost between 1-5 unit sales, while 4.8% have seen 11 or more sales lost.
Solid Used Sales. Compared to 2008, sales of used machinery have stayed strong through the first 4 months of this year. Sixty percent of dealers report that revenues from sales of used equipment have been as good as or better than that of 2008. Only 3.5% of survey respondents reported used equipment revenue was more than 8% below what they saw last year.
One potential concern that emerged from the survey is the gradual build-up of used combines. Several dealers noted that "controlling used equipment inventories" was their biggest concern going into the second half of the year.
Specifically, one Midwest dealer noted that retailing used combines could become a problem. "We have too many. This will affect fall sales if not handled."
Dealer Commentary. Several dealers offered comments on challenges and concerns going into the 2009 growing season.
- "Low income for dairy farms. Hay farmers are getting $80 per ton less than last year."
- "The major concern I have is the cost of new equipment and its affordability for customers with today's margins in farming. There's not enough customers for big equipment at these prices."
- "2008 was such an exceptional year, it was expected that we would have a drop-off this year. Historically, we have purchased several tractors for resale each year to meet demand.
"We have done much less of it in the past 6 months because new equipment wasn't available, resulting in decreased used equipment sales. But our used inventory is in good shape and fairly valued. Our order bank is still large enough that 2009 will be a good year. Not like 2008, but again, we didn't expect it to be!"