While the USDA’s November 10 report on the World Ag Supply & Demand Estimates (WASDE), which revised corn yields down and prices up, may have sounded a positive note for improved farm equipment retail sales going into the new selling season, most analysts believe sales will remain sluggish for at least the first few months of 2010.
The Assn. of Equipment Manufacturers’ most recent report showed that total North American tractor sales were off by 22.6% through the first 10 months of 2009 vs. the same period in '08.
"We expect North American ag equipment sales to remain weak over the next few months, particularly in the higher horsepower segment, as the farm cash receipt outlook remains weak, and year-over-year comparables remain tough," says Ann Duignan, analyst for JP Morgan.
"We also expect Deere to provide a weaker 2010 outlook for North American ag equipment sales when it reports its fourth-quarter results on November 25. According to our proprietary revenue model, industry revenues in Deere’s fourth quarter were down 16% vs. our forecast."
UBS analyst Henry Kirn notes that inventories of row-crop tractors, 4WD tractors and combines are above year-ago levels, while inventories of utility tractors and small tractors are below year-ago levels. "Given lower cash net income in 2009 — USDA expects a 30% year-over-year decline — and robust demand over the last few years, we expect U.S. farm equipment demand to decline in 2010 while rest-of-world demand could remain stable but at low levels," he says.
The late harvest this year could significantly change the overall picture for crop yields and prices, because the longer crops sit in the field, the greater the risk for lower yields and crop quality.
In its latest WASDE report, USDA revised 2009-10 corn yields down to 162.9 bushel/acre vs. its prior forecast of 164.2 bushels/acre. At the same time, it raised the midpoint of its corn price forecast to $3.55 per bushel from $3.35. Kirn notes that even this higher estimate remains $0.51 below last year’s $4.06.
With soybeans, the agency revised yields up to 43.3 bushels/acre from 42.4, and raised its average soybean price forecast to $9.20 per bushel from $9.00, and maintained its average wheat price forecast at $4.85 per bushel.
Duignan adds that she expects total major crop receipts (corn, wheat, and soybeans) for 2009-10 to be down 8% year-over-year, to $93.4 billion vs. prior expectations for $89.9 billion, down 12%.
The USDA’s report was slightly positive for crop receipts, but well anticipated and the market may have expected lower-than-reported yields, Duignan says.