Farm equipment makers know that when commodity prices rise and farmers have extra money in their pockets, they will invest it in the tools of their trade. More often than not, that means they’ll purchase new or really good used equipment.
According to Barry Bannister, machinery analyst for the investment firm, Stifel-Nicolaus, for 83 years, any significant increase in farm machinery sales has followed the increase of commodity prices.
As a result, rising corn prices in recent years has served as the major impetus for increased farm machinery sales. Dealers and equipment makers who are trying to anticipate where corn prices are heading over the longer term, need only to look back on where prices have been historically (see chart below).
“Corn prices per bushel have ‘stepped up’ 75-85% abruptly every 30-35 years and there is always a catalyst. In the 1970s, it was U.S. corn exports and cost-push inflation from the oil shocks,” Bannister says. “In the 2000s, it was the biofuel mandate combined with the debasement of the U.S. dollar via excess credit creation.”
Using these facts, Bannister reasons that current corn prices are just about where they’ll be for the next 20 years or so. He says, “We doubt corn prices vary greatly from $4 per bushel for the next two decades.”
— From Ag Equipment Intelligence