September 4, 2012

We spent a few days last week in Iowa at the Farm Progress Show and had the opportunity to visit with some farmers, equipment dealers and a lot of manufacturers. Of course, the subject of most conversations was this summer’s drought and its impact on farm equipment sales.

Dave

One farmer we spoke with could hardly contain himself when talking about $8 corn and crop insurance payments. He says 2012 will be his best year ever for net income.

When I asked him if he’s planning to buy new equipment with his newfound wealth, he said, “I’m not sure, but I am buying another farm.”

All of the major equipment brands were represented by the dealers we spoke with, and none of them were quite sure what their customers are thinking when it comes to 2013 equipment purchases. While they agreed that the last quarter of this year would probably be a blockbuster “because the farmers’ accountants will tell them they need to spend some money,” next year isn’t nearly as clear.

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One dealer expects his unit sales for 2013 to be “flat to down 20%” next year after several very strong years. Another said he’s concerned there is excess of new and used equipment in inventory right now. Like the other dealers we visited, he’s anticipating that 30% of his annual sales will happen in December. At the same time, he indicates that his customers aren’t yet saying how they plan to spend the windfall many are expecting after the grain is in the bin. A third dealer indicated equipment sales have been growing 20-25% a year during the past few years, but are up only 11% this year so far. He’s anticipating 2013 sales to come in at plus or minus 5%.

Michael Shlisky of JP Morgan, who organized a tour of investors for this year’s Farm Progress Show, sent us a comment from one of their farmer contacts that summarizes much of what we heard while in Iowa. He said, “You get paid once a year. Your employer tells you that you will probably get 50% of your normal wages. And later on, you may get most of the rest. Are you going to go buy a new car, a new house and lavish vacation? Not until you get the money is my guess. I think among farmers, over three-fourths have some crop insurance. Most have it at a high enough level they will see 80-90% of normal income. Nonetheless, nobody is going to spend big until the harvest is done, claims are submitted and the cash is in hand. Now, if I had bins full of grain and some sort of hedge on its value, I would have ordered new iron before Thanksgiving. But here, I'm not even considering an order until I cash the check.”

From the dealer side, preliminary results of our “2013 Dealer Business Trends & Outlook” survey show that a little under half of the dealers who have responded so far are expecting new equipment sales to rise by more than 2% in 2013. Another 23% are forecasting “little or no change” in their revenues compared with 2012. Nearly 29% are getting ready for a dropoff of 2% of revenues next year vs. the current year.

We’ll have a complete report on what dealers tell us in the October/November issue of Farm Equipment. Dealers who would like an early look at what their colleagues across the U.S. and Canada are expecting for 2013 can do so by participating in this year’s survey by going here. All dealers who respond will get a summary report in the next three weeks.

Dave Kanicki,
Executive Editor
Farm Equipment
dkanicki@lesspub.com