A Fork in the Road: Current Ag Equipment Sales Aren’t Exactly What We Expected

In our release of the top five things to watch in 2014 we called for a decline in farm equipment sales. We based our forecast on expected lower crop prices and farm income. If we look at the numbers for the first two months of the year, tractor sales are up 14% compared to 2013 and sales remain 42% over the previous five year average, according to the Association of Equipment Manufacturers.

Our forecast doesn’t appear to be entirely accurate at this time!

Sales of smaller tractors (less than 100 hp) are strong, up 21% compared to last year. Combine sales are also up, though we’ve heard anecdotally much of that increase comes from pre-ordered units.

While the overall numbers look robust, there is some weakness creeping into the numbers. For example, sales of 4-wheel drive tractors are down 16% compared to last year.

As we go forward in 2014, several factors should slow sales compared to last year:

1)      Lower crop margins will hurt sales of higher horsepower tractors

2)      The declining value of the Canadian dollar will make imported equipment more expensive

3)      A weaker used equipment market reduces the incentives to trade-up.

Should crop producers cut back their equipment purchases this year, ag equipment dealers may face some challenges. We still believe year-ending sales figures will be lower than those from last year, even with the potential demand from the cattle sector whose profit margins are expected to be very strong this year.

James Bryan, Agricultural Economics Analyst