We used to say, “All important decisions are made on the basis of insufficient data.” That’s probably not the case these days. In fact, with data coming at us from all angles and every direction, “paralysis by analysis” would seem to be more fitting. What is even more correct is “uncertainty reigns,” but then this is nothing new for agriculture.
Over the past month or so, I’ve received several calls from industry analysts and others essentially asking, “How can it be?”
They were referring to recent surveys that showed both farmer and equipment dealer sentiments were deteriorating. At the same time, AEM reports that in July, North American sales of 100-plus horsepower tractors increased by 30%, the biggest monthly increase in over 5 years. Sales of 4WD tractors that same month were up 75%. Combine sales kept rolling, up 30% in July and, on average, were up nearly 24% year-over-year during the 3 months from May to July.
Meanwhile, the Purdue/CME Ag Economy Barometer declined 26 points to 117 in July “as the impact of commodity price declines and concerns about ag trade prospects weighed on producers’ perceptions of both current and future conditions in the agricultural economy.”
After a fairly consistent run of positive scores since last November, the Ag Equipment Intelligence Dealer Optimism Index, which measures sentiment among dealers compared to the prior month, dropped to –9% in June. This was the worst reading since the –11% in July 2017.
Industry analysts are obviously doing their best to guide investors, but they’re not in agreement where things are headed. Following the release of the August AEM report, one wrote: “Large ag retail sales growth accelerated, but momentum is likely to dissipate … Retail sales in large ag is a plus for near term OEM/dealer earnings but weak crop prices and rising trade war anxieties all point to loss of momentum” into the second half of 2018.
After speaking to “a major Deere U.S. farm machinery dealer,” another analyst noted “a modest improvement in Deere’s early order program, fueled by harvesters and further tightening of used equipment inventories.”
Also note, CNH Industrial reported in its second quarter earnings report on July 26 that its ag equipment order book was up 15% from what it was a year ago.
And speaking of earnings, each of the publicly held equipment dealer groups and manufacturers that reported second quarter results in the past few weeks all showed up in the plus-column: CNHI ag +19.7%; AGCO +17.2%; Kubota farm equipment & engines +7%; Alamo Group ag +8.9%; Titan International +8.1%; Rocky Mountain Dealerships total revenue +27.8%; Cervus Equipment ag +18%.
Deere isn’t reporting its fiscal year third quarter results until Aug. 17, but Zack’s Equity Research says “consensus estimates indicate net sales of Deere’s Agriculture & Turf equipment segment will reach $6.13 billion in the quarter to be reported, rising around 15% year-over-year.
It’s all about uncertainty. With all of its variables, “uncertainty” has always been and will continue to be a hallmark of agriculture. Tariff issues and ethanol politics only adds to the already imperfect data we’re working with.
Author Julian Baggini tells us how to deal with it: “Accepting that the world is full of uncertainty and ambiguity does not and should not stop people from being pretty sure about a lot of things.”