Dealer sentiments about equipment sales for the rest of the year look to be taking a "cautious" turn and, in all likelihood, reflect the mood of their customers in the wake of the worst drought in the Midwest in more than three decades.
While dealers in our most recent monthly "Dealer Trends & Business Outlook" survey reported a 4% growth in sales in June, their outlook for the rest of the year slipped into negative territory.
Our "Dealer Optimism Index" - a measure of sentiment among dealers compared to the prior month - declined to a net 23% of dealers reporting they have a less optimistic outlook now vs. a net 9% last month: 14% are more optimistic; 49% same; 37% are less optimistic.
While farm machinery sales held up well through the first half of 2012, dealers are telling us they're taking a wait-and-see approach to the remainder of the year. Most of the dealers we've spoken with in the past few weeks indicate that many of their farm customers purchased crop insurance that will probably cover a good portion of their expected crop losses for the year.
And while that eases some of the economic pressure, it will never ever make up for the loss of the crop itself. As much as they understand there's nothing they can do about the weather, farmers, like most of us, do not like to watch the product of their work go down the drain. Crop insurance is good, but it's like watching your insured house go up in flames. No amount of money can ever replace what's lost.
On top of it, they know they'll have to listen to the critics who are already taking pot shots at those 'greedy, corporate farmers' for having "subsidized" crop insurance.
A dealer friend of ours sent a note recently that included a newspaper clipping that read, "While farmers fret over the condition of their fields, U.S. taxpayers will be footing 62% of crop insurance costs," said Bruce Babcock, an economics professor at Iowa State Univ., adding that the higher costs go back to changes made in 2000, when Congress increased the share of crop insurance premiums paid by the taxpayer.
"As the cost to insure crops dropped, farmers bought more insurance, further raising the tab for taxpayers," said Babcock. "The cost of subsidizing crop insurance premiums has exploded, from $1.5 billion in 2002 to $7.4 billion in 2011."
Of course, almost anyone not connected to agriculture looks at the farmers' safety net as a handout, while ignoring the risk growers take on to produce the food we all want and demand to be as cheap as possible. What about the $500 or $700 in inputs that go into growing an acre of soybeans or corn?
Why don't we take crop insurance away and see what happens? While we're at it, let's reduce the amount spent on food stamps, which makes up a far larger portion of the Farm Bill expenditures than does any of the actual agricultural costs.
It's kind of ironic, isn't it? We want to feed more people and pay less for it, while at the same time criticizing and persecuting the producers who grow the food they want to give away. What a country!