Both the USDA and Assn. of Equipment Manufacturers released their latest reports in mid-January and analyst can't agree on what the numbers will mean for ag equipment sales in 2009.
USDA published its 2009 World Agricultural Supply and Demand Report on January 12, the same day that AEM also reported its December sales figures for ag equipment.
One machinery analyst viewed both as "bearish" for farm machinery, while another still sees strong positives for another solid year for machinery sales.
Ending Stocks Up. USDA raised its forecast of 2008-09 ending corn stocks to 1.79 billion bushels, from 1.474 billion bushels. It cited both higher yield and acreage in its projection of a 1% increase in corn production to 12.1 billion bushels. Total corn use was lowered by 2% to 11.95 billion bushels, largely driven by lower forecasts for ethanol, feed, residual uses and exports.
The ag agency also raised its wheat ending stocks forecast to 655 million from 623 million and soybeans ending stocks to 225 million from 205 million bushels.
USDA also lowered its price outlook for corn to $3.90 a bushel from $4. The midpoint of the agency's forecast for soybeans remain unchanged at $9 a bushel. Wheat also remained the same from the agency's earlier forecast at $6.70 a bushel.
December Equipment Sales. Industry equipment sales for December 2008 brought the year to close on a weaker note, as well. According to the AEM unit sales data, total U.S.2WD tractor sales were down 20.7% compared to December '07.
Even the sales of 2WD row-crop units (>100 hp), which had shown strong growth throughout the year, slipped 0.5% in December. Sales of 4WD tractors during the month rose by 5.8% as did combine sales, which were up 3.5%.
Differing Views. "We had expected December sales to be strong on the back of the Economic Stimulus Act; however, >40-hp tractor unit sales were down 14% year-over-year in December and down 1% for full year 2008," Ann Duignan, machinery analyst for JP Morgan, said in a note to investors. She also noted that tax incentives expired at year-end.
While the analyst sees the backlog of equipment sales carrying through the first half of '09, "the back half of 2009 has much more uncertainty."
At the same time, Henry Kirn, machinery analyst for UBS Investment Research, remains unchanged in his view that the upside continues to outweigh the downside for ag equipment sales in 2009.
"We continue to expect U.S. farm machinery sales to remain solid, driven by still healthy farm commodity prices, solid farmer balance sheets and expected solid levels of farm income," Kirn said in a note.
The major risks he sees include OEM production constraints, challenging comparisons and an increasingly difficult macroeconomic environment.