In the last few issues of Farm Equipment, including this one, we’ve covered dealer succession planning in some depth. One of the concerns expressed by many of those getting ready to step aside is that the new generation that’s stepping up into positions of ownership have never been through the really tough times. If you think about it, no one under 46 years old was a working professional during Ag’s Great Depression of the 1980s when most dealers couldn’t sell their souls to the devil, let alone a tractor to a farmer.
This got me wondering about what you veterans could alert the next generation to about the telltale signs of an impending downturn. In other words, based on your experience, what economic signals give you the best read on the health of agriculture and your prospects for equipment sales in the year ahead?
About 8 years ago, I posed this question to an Iowa dealer. I remember him saying that another year of $2 corn would sink a lot of farmers and dealers. According to USDA, the average farm price of corn in that 2004-05 crop year was $2.06 a bushel, followed in 2005-06 at $1.99 per bushel. It then “skyrocketed” to $3.04 in 2006-07.
In February, I spoke to a farmer at the National Farm Machinery Show who said he’d lose money if corn fell below $5 a bushel. The average per-bushel price of corn last year was $7.10. Talk about all things being relative.
Yesterday, one of the big equity research firms downgraded both Deere & Co. and AGCO from a “Buy” rating to “Neutral.” Another had done the same earlier in the year, largely based on the forecast for commodity prices.
None of them dispute that the fundamentals of U.S. agriculture are solid, but in reading their tea leaves, or maybe their corn kernels, they’re seeing corn prices as being ripe for a “sharp correction” for a whole slew of reasons.
For example, one analyst points out that, “The relative performance of farm equipment stocks, and Deere in particular, has historically traded closely with corn. Accordingly, if the consensus and our forecasts for farm commodity prices come to fruition, we expect Deere to materially underperform the market.”
USDA’s current projection for corn is $4.80 a bushel for 2013-14, down 33% from last year’s record levels. Its forecast for soybeans is $10.50 per bushel, a drop off of 27%. Deere’s outlook is similar, but not quite so drastic: $5.25 for corn and $12.50 for soybeans.
Does this type of information influence your decisions and outlook? What are the signals you watch for to determine where your farm equipment business is heading? What business intelligence do you rely on to tell you which way the wind is blowing?
These are a few of the questions we’ll be exploring with dealers during the next several months. Not because we believe the industry is in for a correction, but because it’s Farm Equipment’s tagline: Successful Strategies for Dealers. Planning for ag’s economic cycles is a strategy.
Several years ago, a former colleague countered the Murphy’s Law aphorism (Anything that can go wrong, will go wrong) with one of his own that said, “Any emergency sufficiently planned for will not happen.”
I’ve often wondered if this could apply to business cycles. If nothing else, it always gave me something to think about.