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Equipment Industry Builds on Successful Years

December 15, 2012

The equipment industry builds on successful years

As manufacturers close the books on 2012 and plan for 2013, there are three key factors driving the machinery industry: the impact of the drought, farm income and the Tier 4 Final emission regulation.

It might come as a surprise, but according to historical data from the Association of Equipment Manufacturers (AEM), U.S. machinery sales have increased after large-scale adverse weather events. The chart at the right details unit sales after the 1988 and 1989 droughts and 1993 flood.

One caveat, notes J.B. Penn, chief economist for Deere, is that farmers’ fleets consist of newer equipment than in the past. However, gross cash receipts are the strongest predictor of equipment sales, he adds. Officials with John Deere and other equipment manufacturers say anticipated strong income should give farmers buying power in 2013 and crop insurance is expected to mitigate the effect of the drought on farm income.

"Cash receipts last year, 2011, were an all-time record," Penn says. "Despite the reduced output due to drought, receipts are expected to be even larger for 2012. Looking ahead to 2013, strong prices with a normal crop could propel revenues even higher to yet another record."

The one-two punch of two difficult growing seasons in a row, however, might reveal weaknesses.

"Our pre-sales are strong, but a back-to-back drought is scary to think about," says John Lagemann, senior vice president of sales and marketing for John Deere. "That would really throw a kink in the demand cycle."

John Deere isn’t alone in recounting a strong year. AGCO reported a 16% increase in net sales during the first nine months of 2012 compared with the same period the previous year. In general, the company reports, farmers aren’t changing the type or quantity of equipment they intend to purchase.

"Because of the impact of insurance, we’re not seeing the impact to our order bank or to our sales that you might expect," says Bob Crain, senior vice president and general manager for AGCO North America. "Geographically, the bright spots have been the heartland and Western Canada because they are so devoted to crops."

machinery sales

This historical data from the Association of Equipment Manufacturers details ag machinery sales by year, with years of natural disaster noted.

Sales momentum. Across the industry, year-to-date farm tractor sales were up 10% as of October, AEM reports. Combine sales were down less than 1%. Together, unit sales are well above the five-year average.

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FEATURED IN: Farm Journal - Machinery Guide 2013
RELATED TOPICS: Machinery, Technology, drought

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