When ag equipment companies responded to the Association of Equipment Manufacturers (AEM) survey regarding their sales forecast for 2009, they reported a continued upward curve. But the survey was conducted in September—before the serious economic angst set in.
Manufacturers saw record-setting sales in 2008. But as economic uncertainty descended by the end of the year, the crystal ball for equipment demand is more unclear.
"We are coming off an outstanding year where we've seen record sales and have been faced with major equipment shortages," says Doug Griffin, AGCO vice president of North American sales. "We're going to have record net farm income in 2008, as we predicted. However, there are a lot of question marks that remain unresolved."
As reported by AEM, the strongest sales increases in 2009 are predicted to be in the machinery primarily demanded by row-crop farmers. Categories that pertain to small acreage or lifestyle farmers are expected to see a downturn. The manufacturers weighed their expectations on 15 factors, including crop prices, livestock prices, credit availability and replacement demand.
When the economic downturn was outside the ag industry, it seemed like ag was somewhat insulated. Then corn dropped below $3 in December and the market drop punctured the bubble wrapped around ag. Since the AEM query, those in the machinery business have become guardedly optimistic and have toned down expectations.
"As of December, we are calling for a flat industry going into 2009 with increases in large equipment offset by declines in smaller tractors," Griffin says.
In the AEM survey, one of the product categories expected to have the largest sales growth in 2009 is planters. Respondents forecast planter sales will increase 9.3%.
"We will build planters through March for 2009 delivery," says Susanne Veatch, Kinze Manufacturing vice president. "Then, as we forecast sales for 2010 delivery, we will keep a close eye on market indicators. We look at a lot of different sources because no one knows for certain, but with corn prices where they are at the end of 2008 there could be significant change for demand."
Global impacts. The U.S. isn't the only market affected. Shaky economic forecasts echo around the globe. Ag markets in Eastern Europe and South America have dramatically weakened. On the brighter side, the lessened demand outside the U.S. may open up machinery supply.
"In the coming year, you could expect a little bit of relief in equipment supply. There are some weaknesses in industry sales in South America and in parts of Eastern Europe, and that is going to ease some of the pressure on equipment supply we're seeing in North America as we head into 2009," Griffin says.
As manufacturers shift their positions into a wait-and-see pattern, farmers may be in a similar position in regard to credit availability. There has been greater scrutiny across the lending industry, and credit providers are reluctant to make any broad statements or specific guarantees while operating in this volatile environment.
- December 2008