Higher crop prices have lifted farmers’ spirits in 2021, spurring a powerful appetite for new farm machinery after years of lackluster demand, experts say.
Unit sales of new tractors over 100 horsepower rose 23% during the first half of the year, while unit sales of four-wheel drive tractors surged 32%, according to the Association of Equipment Manufacturers. Unit sales of self-propelled combines increased 11% in that time.
“Commodity prices are a pretty good indication of how farmers feel, and if they feel good, they’re going to invest in capital equipment,” said Curt Blades, AEM’s senior vice president of ag services.
Large machinery sales plummeted during the early days of the coronavirus pandemic but recovered enough to end 2020 on a positive note.
An upswing in commodity prices, partly buoyed by foreign demand for U.S. crops, has convinced farmers to spend more readily on major purchases in 2021, Blades said.
Exciting new automation technology has also helped, as has the solid market for used machinery that’s ensured high trade-in values, he said.
“You don’t invest a half-million dollars in a combine unless you feel pretty good about your future in the next few years,” Blades said.
Growers are now probably seeing their strongest net returns since 2013, which also marked a high point of investment in machinery before years of weaker demand, said Michael Langemeier, a Purdue University agricultural economist who tracks the industry.
“Looking at the U.S. as a whole, 2021 is going to be better than anything from 2014 to 2019,” he said.
With a better income outlook, farmers are now more willing to replace their machinery — both because some of it’s wearing out, and also to reduce their tax obligations, Langemeier said.
The enthusiasm for investing in machinery doesn’t appear much diminished by the higher cost of steel and other inputs, which have made equipment more expensive, he said.
“Even though the costs are higher, the returns are strong enough to offset that,” he said.
Manufacturers are trying to keep the supply chain running smoothly despite tight supplies of steel, labor and transportation, said Blades. “All three of those things are facing pressure in the global marketplace.”
The industry is also struggling with a shortage of computer chips that are needed to “run everything from toasters to tractors,” he said.
As a result, “there’s not a lot of inventory standing around on lots” and orders may take longer to fulfill, he said. “The only solution is a little bit of time.”
Despite a recent softening in commodity crop prices, the prospects remain good for farmers based on the futures market and a fairly low ratio of stocks to usage, said Langemeier.
The drought is the “wild card” that will impact some farmers more severely than others, depending on the region, he said.
Generally, though, crop prices can be expected to remain healthy until inventories are replenished, which usually requires two to three years, Langemeier said. “When you get in that situation, it takes a while to get out of it.”
Sales of smaller tractors have also shot up in 2021 — 15% for those under 40 horsepower, 19% for those 40-100 horsepower — after an already impressive performance in 2020, according to AEM.
The market for smaller machinery, which was invigorated by people spending more time at home, has recently shown signs of leveling off, Blades said. However, that’s largely a function of demand becoming “more rational” after being “on fire” for so long.
“That market is going to find its correct footing and it’s going to be stronger than it has in the past, though it may not grow at the rate it has been growing,” he said.