The USDA’s June crop supply and demand forecast for the 2013-14 crop year points to a 13% decline in farm cash receipts. This is a slight upward revision from the initial 14% decline projected in May. If historical trends hold, this would imply that 2014 could be a challenging year for farm equipment demand vs. 2013, as the correlation between equipment sales and cash receipts has provided a good proxy for future equipment demand.

The chart below depicts North American high horsepower tractor and combine sales on a one-year lag vs. our simplified farm cash receipts proxy as illustrated using the three most important crops — corn, soybeans and wheat.