Grain prices are up. Yields in many areas are above average. Ag credit conditions are up. And, dealers report early orders are up and they are seeing good demand for equipment. But there are still some concerns — challenges getting equipment from the OEMs and concerns over taxes, regulation and trade following the election. Let’s look at some of the positives first.
The latest Dealer Sentiments and Business Conditions Update from Ag Equipment Intelligence shows average dealer sales were up 3% year-over-year in October, vs. up 1% the prior month. A net 37% of dealers said they beat their sales budget in October. Parts and service sales were up 4% year-over-year for the month as well.
“Grain prices are ticking upwards and we’re seeing above average yields. Operators are in a position where they are going to have to update some equipment,” said one Corn Belt dealer. And one dealer in Canada said their pre-season was so strong that they have 60% of their sales booked for 2021.
According to the Assn. of Equipment Manufacturers, total North American large ag sales were up 9.8% in October with growth across all categories. In the U.S. October year-to-date total, tractor sales were up 15.1% and combine sales were up 5.5%. In Canada, total tractor year-to-date sales were up 9.6% in October, but year-to-date combine sales were down 7%.
According to the Kansas City Federal Reserve Bank, credit conditions improved during the third quarter. Alongside a better outlook for farm income in 2020, most measures of credit conditions also deteriorated at a more gradual pace in the third quarter.
About 20% of respondents to the Kansas City Fed survey reported a decline in loan repayment rates, compared with about 35% in the previous two quarters and 30% the same time a year ago. Repayment challenges were expected to ease across all types of farm operations in the next 3 months and improve slightly among row crop farmers and cattle producers.
Elections & Inventory
While overall, things are looking good right now for equipment sales there are some lingering concerns. Most of those concerns stem from the U.S. presidential election and worries about COVID-19 spikes. Dealers continue to report that they are struggling to get the inventory they need from their manufacturers. “We are concerned about the uncertain political climate, the pandemic and the lack of inventory,” said one dealer from the southern U.S. One dealer from the Lake States region said the election results have made farmers nervous about spending money.
The latest Ag Economy Barometer confirms that thinking. U.S. farmer sentiment weakened following the November 2020 elections, the report says. The monthly Ag Economy Barometer reading fell 16 points. Although farmers’ expectations for the future weakened, they remained relatively optimistic about making large investments in their operations, as the Farm Capital Investment Index changed little in November with a reading of 80, just 2 points below the index’s record high set back in October.
But despite the few negatives lingering, overall dealers are optimistic. The Dealer Optimism index has been climbing since it bottomed out in April. The latest reading shows that a net 27% of dealers reported being more optimistic in October (40% more optimistic, 47% the same, 13% less optimistic). Dry weather in many areas and an overall good harvest have been a nice bump for farmers and dealers alike. As one dealer noted, “Markets have picked up and we think there will be money spent before year end.”