Farm equipment dealers know they’ll be tested in the coming sales year, but most say they’ll hold their own in 2010.
Dave Kanicki, Executive Editor
From the lower prices forecast for farm commodities to the rising prices for new farm machinery, farm equipment dealers have a lot on their minds going into the 2010 selling season. But what may be more revealing than any other trend emerging from Farm Equipment’s 2010 Business Trends & Outlook survey is how the cost of new equipment has risen on dealers’ list of concerns.
When it comes to new equipment sales, most are realistic enough to know that it would be difficult, at best, to maintain the kind of sales levels in the next 12 months that they’ve seen in the past few years. Chances are it will be a trying year, especially if they compare it to a landmark year like 2008.
Nonetheless, most dealers still see solid prospects for maintaining sales levels in 2010. In fact, 57% of the more than 300 dealers responding to Farm Equipment’s Business Trends & Outlook survey expect revenue to be as good as or better than those of the year before.
At the same time, it’s clear that they’re not quite as self-assured as they’ve been in the recent past. With the late harvest this year, their crystal balls remain cloudy. Not even their farm customers are sure how the year will ultimately pan out.
That uncertainty is reflected in their responses to the survey. While over half of them expect revenue of new equipment in 2010 to be as good or better than in 2009, a large percentage of that group — 33% — see revenue from wholegood sales coming in at about the same levels as they experienced during the last year.
Another quarter of the dealers, or 24.4%, expect sales to improve compared with last year. Only 4.1% of those forecast sales to improve more than 8%, while 20.3% anticipate sales improving 2-7%.
That leaves 42.6% of dealers who are getting ready for slower sales in 2010. More than 22% see sales of new machinery slipping by 8% or more, while 20.3% expect revenues to drop between 2-7%.
Overall, revenue from new equipment sales is expected to fall by 1.5% in 2010. While several respondents expressed concern about the growing inventory of used machinery on dealer lots, overall they aren’t quite as concerned about 2010 turnover of trade-ins as they are about new equipment sales.
Over two-thirds of all dealers — 67.9% — see the revenues from used equipment reaching or exceeding 2009 levels. Nearly 40% don’t anticipate a significant change from the previous year’s sales — which were healthy, to say the least.
While 21.6% expect sales of used equipment to improve by 2-7%, another 6.9% see it rising by 8% or more. Nearly 18% of dealers expect used machinery sales to fall 8% or more, while 14.3% see it slipping by between 2-7%.
Looking Back: A Difficult Comparison
Comparing current dealer sentiments about business prospects for 2010 and their outlook a year ago, for what they expected for 2009, is difficult at best.
A year ago, dealers were still in the midst of one of the best years for unit equipment sales that many had ever experienced. The biggest challenge last year was getting enough new machinery to satisfy the growing demand from North American growers for row-crop tractors and combines. Equipment shortages developed as the major equipment makers shifted more production than usual to overheated, overseas markets. Those shortages also resulted in the one of the highest early-order levels equipment makers and dealers had ever seen. This would carry very healthy unit sales over into the first several months of 2009.
The bitter irony is that while high sales levels of the big equipment continued well into ’09, sales of smaller tractors and other equipment tied to the housing and construction industries, as well as dairy and livestock operations, continued to deteriorate throughout the year.
Nonetheless, in mid-August 2008 when Farm Equipment conducted its annual Business Trends & Outlook survey, overall dealer confidence was soaring. At the time, more than 80% of dealers polled forecast sales to be as good as or better than they were in 2008, which many were already calling a “generational year.”
It’s a completely different scenario going into 2010, as it appears the effects of the economic recession has begun to undercut the strong fundamentals of agriculture. In any case, most dealers agree that trying to compare sales levels for 2008 and much of 2009 to any other time period is a futile exercise.
Through the first 8 months of 2009, 34,900, or 21.6%, fewer tractors were sold in North America compared with the same period in 2008.
In the U.S., compact tractor (<40 horsepower) sales were down 21.4% in the January-through-August period, while sales of utility tractors (40-100 horsepower) declined 28.3%. During the same period of 2009, sales of rowcrop tractors (>100 horsepower), which stayed strong through much of the first half of the year, began slipping in June. By August, year-over-year sales of row-crop tractor sales were down 8.9% compared to 2008. Only 4-wheel-drive equipment sales are showing positive numbers through the first 8 months of the year, gaining 7.6% compared to the same period in ‘08. Overall, total tractor sales in the U.S. were down 21.7% through August.
It was the same story in Canada, where total tractor sales are down 22.2% for the year, with compact tractors slipping 25.2% and utility equipment falling by 22.3% yearover- year through the first 8 months of ‘09.
Remarkably, combine sales have continued to rise throughout 2009 in both countries. Through the first 8 months of the year in the U.S. combine sales grew by 31.7%, while Canadian sales were up by 10.2% during the same period. Total North American retail sales of combines for the January-through-July period rose to nearly 8,000 units, or up 26.2% so far for the year.
Looking Ahead: An Unclear Picture
With the cool, wet weather of spring pushing planting back several weeks in many key agricultural regions of the country, and a late harvest expected, growers and dealers alike are left to guess what the year will bring. USDA forecasts for higher yields and lower farm prices haven’t been particularly encouraging.
The worldwide economy, which has yet to show significant signs of becoming healthy again, is also weighing heavily on U.S. agriculture. The global slowdown has dramatically reduced the high levels of exports U.S. farming enjoyed in 2008 and much of ’09. Average prices for crops are down 17% from August ’08, milk prices are off 36%, and all August prices for livestock products are down 20% compared to the year earlier. Moving into ’10, price recoveries will be faster for crops than livestock.
Despite all of this, equipment dealers see the possibility for maintaining and maybe even improving unit sales in the new year.
‘Best Bets’ for 2010
When it comes to products that dealers see holding the most promise for improving sales during the 2010, none reach the high levels of optimism as they did last year, but a large percentage of dealers hold high expectations for some.
As they were last year, GPS/autosteer equipment and rectangular hay balers remain at the top of dealers’ 2010 “best bets” list for growing sales in 2010. Nearly 86% of dealers see opportunity with GPS systems and 83.7% listed rectangular bales as second on their list.
Self-propelled sprayers moved up to third place this year on the dealers’ best-bets list (82%) from the tenth spot in 2009. This was followed by tillage tools, including chisel plows that occupy the fourth spot on the list (79.4%) and disc harrows that moved up to the fifth slot (78.7%).
The most surprising jump came from forage harvesters as dealers ranked this high-priced equipment as number six on their list of best bets (86.5%), up from number 17 in 2009.
Of the 20 product groups ranked by dealers this year, tractors occupied the bottom three places on their list. Both compact tractors (<40 horsepower), which has experienced declining sales for the second year in a row, and row-crop tractors (>100 horsepower) that had seen strong unit sales growth through the first half of ’09 are expected to present the lowest levels of growth in the coming year. Only 65.7% of dealers see significant potential for improved sales in the coming year.
The next lowest spot is occupied by utility tractors (40-100 horsepower) as only 66.6% of dealers see the possibility of sales growth for them in 2010.
Lawn and garden equipment, which was rated as dead last in 2009, moved up to the 17th spot for 2010, as 70.1% of dealers rated this product category as having potential to grow unit sales. It was followed by two hay tool categories.
Mower-conditioners were ranked as number 16 on dealers’ list (73%), followed by windrowers/swathers as 74.8% of dealers see growth potential with this equipment group.
Pricing & Cost Concerns
What may be the most significant trend to watch, both in the short and long term, is the effect of the rising price on new equipment sales. It should have come as no surprise as it’s been moving up the dealers’ list for the past 4 years.
Typically, dealers have bounced between high fuel and energy prices, the cost of health care and difficulty in finding qualified technicians as the biggest concerns. This year, cost of new equipment has claimed the top spot on their list. Last year it ranked number four.
More than 98% of dealers said they were “most concerned” or “concerned” about the rising cost of new equipment. Only 1.8% indicated they were “not concerned” about it.
Combined with their second biggest worry, lower commodity costs (94.3%) — which was number eight on their list in ’09 — it’s no wonder more than 40% of dealers are anticipating lower wholegoods sales in 2010. That’s the short-term effect of increased equipment costs.
In the longer term, a shrinking farm customer base, (which moved up from sixth place this year on the dealers’ list of major worries from number nine in 2009) combined with the higher cost of new equipment is starting to keep equipment retailers up at night.
As Dennis Mattmiller, Antigo Machinery Sales, Antigo, Wis., says, “My concern is that what drove up equipment prices in recent years has relaxed, yet the price of the equipment is still going up.”
Earlier this year, another Wisconsin dealer told Farm Equipment about his long-term concerns with the escalating costs for new equipment and the shrinking farm customer base. “The cost of new equipment and its affordability for farmers with today’s margins in farming is a major concern.
There are just not enough big customers to buy the big equipment at these prices.”
Energy and fuel costs, which were last year’s biggest concern, came in third this year and remain a major worry. Farm input costs was not included on last year’s rankings, but they showed up as dealers’ fourth major concern going into 2010.
It shouldn’t surprise anyone that the biggest drop on the list of concerns for the coming year is with new equipment availability. Last year it ranked sixth on the list, but has fallen to 14th place for the new selling season.
Hiring Plans Lowered
Compared with previous hiring levels, dealers say they plan to add less staff than they did last year. Nonetheless, they’ll still hire if they find the people they’re looking for. As usual, service technicians remain their highest priority when it comes to adding staff next year. More than one-third — 34.6% — of dealers indicate that they will add techs. This compares with nearly 60% of dealers that were planning to increase service staffing in ’09.
More than 16% of respondents said they would increase sales staff in ’10. This is down from 27.8% last year. Slightly less than 16% plan to hire additional people for the parts department next year, which is also down from ’09’s 26.7%. Office staff will not be in high demand in 2010, as only 5.7% of dealers say they’ll add administrative personnel.
On the other hand, dealers aren’t planning any significant reductions in their employment levels. If that holds throughout the year, the industry will have fared far better than a majority of industries throughout the North American economy.
Spending Plans Curtailed
Without a clear vision of where 2010 sales levels will end up, dealers say they’re not planning to invest as heav- ily in equipment and facilities as they have in recent years. More than half, or 56.2%, indicate they plan no significant increases in spending during the coming year. This is up from 41.2% that didn’t plan to increase capital spending in ’09.
At the same time, a full one-third (33%) of equipment dealers say they’ll increase facilities and equipment investments between 1-5% in the year ahead. The remaining 10.8% plan to increase capital investments by 6% or more.
As usual, the shop and service will receive the most attention when it comes to improvements and expansion. Nearly 40% of the dealers that plan to increase spending next year will invest it in their service areas.
More than 35% of dealers plan to upgrade their business information systems. Another 24.6% will increase their investment in improving and modernizing their showrooms.
Canadians Far More Upbeat
Compared with Canadian farm equipment dealers, U.S. dealers come across as pessimists. Of course, the economy in Canada wasn’t hit nearly as hard as it has been in the U.S. And with each of the four major equipment makers headquartered south of the border, and the fact that the U.S. market is so important to the their financial well-being, any bad news they have to report tends to be amplified in the U.S. market. But it wasn’t that long ago that the Canadian dealers didn’t feel all that good about their sales prospects.
In terms of revenue from new equipment sales in 2010 vs. 2009, 68.6% of Canadian dealers see levels being as good or better next year than they were in the past year. This compares with 55.9% of U.S. equipment sellers that see unit sales staying at about the same level or improving in ’10.
When it comes to increasing sales year-over-year, 40% of Canadian dealers expect unit sales to increase in 2010 compared with 2009. This compares with 22.3% of U.S. dealers.
U.S. equipment dealers have an edge when it comes to their expectations for sales levels of +8% or more, with 4.3% expecting to reach or exceed that level. Only 2.9% of Canadians anticipate sales reaching or surpassing the +8% during the coming year.
The bigger difference comes with those dealers expecting sales improvements of +2-7% next year. While 40% of Canadian dealers anticipate sales to rise in that range, only 22.3% of U.S. dealers hold this expectation.
The same holds true when it comes to declining new equipment revenues. Where 44.1% of U.S. dealers expect lower sales next year compared with ’09, only 31.4% of Canadian dealers see sales declining.
Used equipment sales next year is being viewed differently by U.S. and Canadian dealers as well.
Nearly 84% of equipment retailers to the north anticipate that used equipment sales will be as good as or better in 2010 than they were in ’09, compared with 65.8% of U.S. dealers. And whereas only 16.1% of Canadian dealers see used machinery sales declining next year from ’09 levels, more than double that, or 34.2%, of U.S. retailers anticipate sales of used equipment being less in the next year than they were last year.
Differing Product Picks
Once they get past the top two products on their “best bets” list for 2010, U.S. and Canadian dealer hold significantly different views on what will sell in 2010 and what won’t.
Like the overall North American best bets ranking, both U.S. and Canadian dealers expect GPS/autosteer and rectangular hay balers to have the best prospects for improving unit sales next year — though they ranked each in a different order.
Self-propelled sprayers finished third, forage harvesters fourth and pull-type sprayers fifth on the U.S. dealers list of best bets for 2010. Disc harrows, chisel plows and planters occupied those spots on the Canadian ranking of products with the best prospects for improving sales in the coming year. Those high-ranking products for Canadian dealers ended up 10, 14 and 13 respectively on the U.S. list. At the bottom of the U.S. list of best prospects for 2010 were all tractors: 40-100 horsepower 18, <40 horsepower 19, and >100 horsepower 20.
The products ranked lowest by the Canadian dealers included mower/conditioners (18), combines (19) and lawn and garden equipment (20).