Dealers Forecasting Declines for 2014

With most of the U.S. crop in the ground, it looks like farmers are over the initial hump for this year. And as is usually the case during planting season, the weather was the cause of most consternation for farmers and ag equipment dealers alike. Going forward, though, dealers have some even bigger issues to contend with.

One dealer summarized the general conditions he and others will be confronting in the year ahead in his response to the May Ag Equipment Intelligence Dealer Sentiments & Business Conditions Update survey. He said, “Weather is still an issue along with too much used inventory, depreciation changes and crop prices.” Each one of these by themselves can exert significant influence on new equipment sales. Combined, their influence can be exponential.

That’s not to say that new farm equipment sales are heading for the dumper this year, but let’s say, things could be a bit trickier than they have been the past few years.

On average, dealers are expecting sales to dip about 4% for the full year, which is in line with the single-digit declines they’ve been forecasting since last November.

By brand, AGCO dealers responding to the latest survey are projecting flat (0%) sales for the year; Case IH dealers are forecasting sales to decline about 6%; John Deere dealers are looking at down 3%; New Holland dealers expect sales to slip 6%; Kubota dealers are looking at 2% dropoff; and dealers who handle only shortline equipment are somewhat more positive at up 1% for the year.

As for the manufacturers, AGCO sees ag equipment sales to be flat to down 5%. CNH Industrial is forecasting tractor sales to be flat to up 5%, but combines sales to fall 15-20% in 2014. Deere expects its North American sale of farm machinery to fall 5-10% for its fiscal year.

Anticipating a sales slowdown, particularly in the second half of the year, and with Tier 4 final price increases kicking in, dealers indicate that manufacturers are getting more aggressive with sales incentives. “For Q3, orders incentives have increased,” said one dealer. Another added, “New Holland has some aggressive ALL in programs that may help this month on hay tools.”

On the other hand, some incentive programs are causing problems for some dealers, as one pointed out, “Sunflower’s current programs make new machines out of the factory cheaper than the ones we have in stock. That is a problem.”

The ongoing used equipment inventory backlog also continues to concern dealers as it’s impacting used equipment values. One dealer put it this way: “Customers are asking for high values to trade-in and wanting to pay low prices to purchase.” Typically, this is not a new phenomenon, except for the fact that the value of used equipment continues to fall; putting dealers in a less than enviable position when dealing with customers who don’t necessarily follow used farm equipment trends.

According to the latest Dealer Sentiments survey, a net 23% of dealers are reporting their used equipment inventory as “too high” (40% too high; 44% about right; 17% too low). And it gets worse when combines are broken out. A net 51% of dealers report used combine inventories are “too high” (53% too high, 45% comfortable, 2% too low). This is up from a net 44% of dealers who said their combine inventories were “too high” during the previous month.

Despite so much of the news seemingly coming from the negative side of ledger, some dealers are seeing some upbeat trends. As one put it, “Growers are still positive, even with late spring and weaker prices. Dairy and livestock are looking better.”