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I Knew You Were Buying...But Wow!

I Knew You Were Buying...But Wow!
Market analyst says farmers bought as much in the last five years as they would in seven, and buyers might take a break.

Prognostication in the equipment business is always interesting. Knowing what farmers may do in the year ahead based on costs, income and other factors is no easy guess. But one machinery analyst has made an observation worth sharing. Steven Fisher at UBS, issued a report this week showing that the key risk facing the farm equipment business in the near future is the ability for buyers to delay purchases.

BUYERS? Farmers flocked to farm shows this fall looking for new tech. Will they put that on 'pause' in 2014?

Noting that corn prices have fallen nearly 50% from their 2012 peak, the income picture is changing from what it was in the past five years. Yet here's the interesting observation, and I'll quote Fisher: "We have assessed recent trends in high-horsepower equipment demand and conclude that the prior five-year period's sales represent seven years of normalized replacement demand, implying the farmers can essentially afford to take two years off before replacing current equipment."

He adds that customers he's contacted appear to have a "reduced appetite" for equipment purchases next year. An interesting observation, that you might be able to take two years off from buying.

Fisher goes on to say that the last time corn prices were at this level, retail sales of row crop tractors were 36% lower. Case in point? Current row crop tractor sales are at 41,840 units, but between 2006 and 2011, when corn prices averaged $4.43 per bushel, sales averaged nearly 27,000 units.

Chances are that 2014 buying could look different than the past five years. Unless something happens with corn demand to push prices back up - the long term trends still show that the world market does not have too much corn. In addition, today's equipment buyer has a different attitude about the need to keep up with the latest production technology.

I'm not being Pollyanna here (younger readers should just Google that reference) - but business savvy farmers with a fleet-based strategy who also manage their working capital well probably won't buy fewer tractors. It will be interesting to see how the new-year market shapes up.

Fisher could be spot on, but to see equipment fall that far in the next year seems unlikely. It's a subject we'll keep an eye on.

Looking at the latest Association of Equipment Manufacturers Flash Report - released October 10 - shows that year-to-date trends remain higher. Sales of two-wheel drive row crop tractors are up 12.4% over the same period in 2012. Sales of four-wheel drive tractors are up 3.1%. And combine sales are up 16.4%. September sales for four-wheel drive machines and combines have slipped, but September isn't always a "buying" month.

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