Farm Machinery Manufacturers Brace for Soft Sales in 2016

February 17, 2016 03:00 PM

Farmers at the National Farm Machinery Show are looking at equipment, but buying may be a different story.

"We have a lot of good equipment," said Indiana farmer John Cheesewright. "We'll just add another year on it."

That’s partly due to volatility in the markets, cheaper commodities and decreased net farm income.

“Some indicators are down from previous years. Interest rates are up in some areas. They already made most decisions of what they’re going to do for 2016. They’re hoping now to find out from the manufacturers what the trends are so they can plan for 2017 and 2018,” said Rip Rippetoe, president and CEO of the Kentucky State Fair board.

“We are below our cost of production right now," Cheesewright said. "This is going to be a tough year, I’m afraid."

The equipment business is feeling similar pressure.

“The larger equipment will see a softer market. We are down 50% compared to the two years relative to what the market and the number of four-wheel tractors that were sold. Looking at commodity prices, some of our members are saying we pretty much bottomed out," said Charlie O'Brien, senior vice president at the Association of Equipment Manufacturers. "When you look at 2016, some of our members are saying we pretty much bottomed out. The year 2016 should be flat. We look at 2017 to be a better year. Some are saying 2017 and 2018, the reality is how good the commodity prices are."

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O’Brien says while the market for larger equipment has softened, demand for smaller machines is holding up.

“Smaller equipment and smaller tractors of 40 horsepower and below usually follows what goes on with the general economy. A lot of those tractors are going to weekend farmer. The general economy is doing pretty well. Some of those compact utility tractors also go to dairy and livestock even though those areas are not as strong as last year.” said O’Brien.

Manufacturers such as Kubota say they’re less reliant on the farm sector and that’s helping business.

“Small to mid-size, that’s tied to the hobby farmer," said Todd Stucke, vice president of sales, marketing and product support at Kubota. "The general economy is strong now and oil prices are low. That business is more flat for us."

Class representatives say the equipment business is coming off the highs of a few years ago. They expect 2016 to be a return to normalcy.

“Livestock and dairies are strong and were throughout 2015. That’s for forage and silage production," said Leif Magnusson, president of CLAAS of America. "We are seeing prices of used equipment starting to normalize. It’s easier for our dealers to go to the farmers because they know what they can offer for the trade-in. Before, pricing was all over the map."

Case IH representatives say they think the low points will prove to have been 2014 and 2015. “We will certainly continue to decline, but I think we’ve seen the biggest two declines,” said Jim Walker, vice president at Case IH. 

Whether it’s buying used or new, some farmers say either decision is going to be a big one. “If I buy something, it’s not because I want it," said Michigan farmer Sid Hawkins. "It’s because we need it."

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