Farmers are continuing to pull back on buying large tractors and combines in 2017, though sales aren’t plunging as steeply as they did last year.
Through mid-year in the U.S., unit sales have decreased 14 percent for two-wheel-drive tractors over 100 horsepower, 6 percent for four-wheel-drive tractors and 6 percent for combines, according to the Association of Equipment Manufacturers.
While that’s hardly a stellar performance for the farm machinery industry, unit sales in each of those categories dropped more than 20 percent in 2016.
“It would indicate we’re getting closer to the bottom of a difficult cycle,” said Charlie O’Brien, senior vice president at AEM.
Unit sales of larger tractors and combines last year fell by nearly 55 percent since the most recent peak in 2013, tracking the reduction in farm incomes from lower commodity crop prices.
Dealers have also been dealing with a glut of fairly new trade-in machinery that’s suppressed demand for new tractors and combines, though the surplus appears to be easing, said O’Brien.
Last year, 59 percent of dealers said inventories of used machinery were too high, but that rate has declined to 48 percent in 2017, he said.
“A lot of that used equipment has been flushed through the system,” O’Brien said.
With more room on their lots, dealers are able to accept trade-ins when farmers are ready to buy new machinery, he said.
Manufacturers have already adjusted to the reduced demand by shuttering factories and cutting back production shifts, O’Brien said.
There are indicators farmers are also becoming more accustomed to the new environment of lower commodity prices, though debt-to-asset ratios have grown, indicating their balance sheets have deteriorated on the whole, he said.
The “macroeconomic” trends for agriculture are positive, given long-term population growth, but the machinery industry isn’t expecting another sales boom as seen in 2012-2013, O’Brien said.
“I think everybody agrees that was a bubble, but I don’t think this is normal, either,” he said.