Equipment sales show signs of slowdown
February 11, 2009
COLUMBIA, Mo. (DTN) — What a difference a year makes. As the farm machinery shows began to kick off in 2008, anyone selling farm equipment, parts, or related products was all smiles, enjoying the benefits of farmers with jingle in their pockets and a pent-up desire for new paint.
Twelve months later, smiles can still be seen, though they are showing signs of being a little more forced as the general economy and falling commodity prices have set a more conservative purchasing tone for 2009 and beyond.
Most major tractor and combine companies have lower new machine sales expectations in recent quarterly earnings statements. A common theme in those revisions is the precipitous falloff of large tractor and combine sales in South America, Russia and Eastern Europe. J.P. Morgan noted in a recent stock advisory that Deere & Co. announced layoffs at a combine production plant in Brazil.
Agco Corporation expects sales to fall 5 percent in North America, 5 to 10 percent in Western Europe and 20 to 30 percent in South America, according to a report on Forbes.com.
CNH Global N.V., which sells Case-IH and New Holland brands, said in early January it expects a 10 to 15 percent drop in worldwide industry sales of tractors 40 horsepower and larger, with industry sales of new combines down 20 to 25 percent. Most equipment companies also predicted declines of 20 percent or more in tractors under 40 horsepower; that drop is driven mostly by slower sales to non-farm and residential markets.
“We’re definitely in a trend of more buyer caution,” said J. R. “Russ” Green, president of Claas of America, Inc. “In December, we still had growers who were taking delivery on orders to get the depreciation.” Green said the company decided against dropping retail prices as the winter order season came into swing, choosing instead to offer extended warrantees to sweeten the sales pot.
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Green said the conservative tone is no surprise. In October 2008, he told DTN that companies were beginning to hold their breath as the heavy sales of the previous two seasons began to collide with the then-just-weakening economy and falling corn and soybean prices.
“Things aren’t what they were in October, but there’s still a decent amount of sales interest,” said Craig Holmes, owner of Findlay Implement, a Deere dealer in Findlay, Ohio. “Farmers here still have some good grain contracts, and the ones who need new equipment are buying. Good used equipment is especially strong,” he said.
“Now what things will be like in July, you tell me,” Holmes said, echoing a general feeling of uncertainty, but a long way from despair, by dealers across the country. “Things like planters and tillage equipment, they are usually steady here year in and year out. The general attitude may not be what it was last year, but it’s still pretty positive with the customers I’m seeing.”
“The big equipment users are still buying, they just do,” said Robert Pfingsten, sales manager for Arnold’s of Willmar, a Case IH dealer in Minnesota. “Some of the lower end of the market has moved up due to better crop prices. It’s the guys in the middle who seem to be slowing up a little in terms of interest in buying new equipment.”
“I also have to think there are guys out there hiding in the weeds, sitting quiet and waiting for some bargains to come along later in the year,” Pfingsten said.
The downward global combine market has turned into a positive for U.S. growers, most dealers agree, as a backlog in combine shipping disappeared. “A couple of months ago, we were told we might not get equipment,” commented one central-Kansas dealer. “Now, we’re getting all the machines we want.”
One consequence of heavy combine sales is a growing glut in used machines. “We’ll be delivering a lot of new combines in fall, so we will be getting a good number of used machines in then,” Holmes said. “It’s not a new problem, though; we’ve had to balance that for many years.” Some dealers quietly admit to not hunting quite as hard for new combine sales in 2009, mostly out of concern over what to do with the trade-ins.
Nowhere is that issue tougher than in the large Class 8 combine market. Buyers of these large machines tend to trade annually, or at least every other year, Green said. A slow market for used high-capacity machines continues to dog the industry. “The issue for dealers is do you try to get a customer into, for example, four smaller machines, or two Class 8s. Farmers who need the capacity, and lack the extra operators, prefer the larger machines. It’s difficult for the industry to keep that in balance.”
greg horstmeier can be reached at email@example.com.