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Buying Frenzy

Initially, 2007 looked like a ho-hum year for farm equipment sales. But as the year progressed, it gradually turned into an intense scramble to buy tractors, combines, planters and other farm equipment as the end-of-the-year tax deadline approached.

The buying frenzy will continue into 2008 as manufacturers fill orders that are likely to keep many factories at full production at least through planting.

No doubt, these are good days for farm equipment manufacturers and retailers, but they are sometimes frustrating from a buyer's perspective. Depending on the piece of equipment, if you haven't already placed your order, you may be up against the wall if you want delivery before 2008 planting.

The lessons to be learned from 2007? Plan purchases well ahead of your needs. Manufacturers have been pushing this mantra for years but haven't always exhibited the discipline to follow it themselves. Stronger demand and reduced manufacturing capacities could make this more of a reality across all major brands in the future.

A second lesson: Pulling the trigger on farm equipment purchases early, before demand is strong, can pay off. Lucrative special financing programs designed to stimulate demand generally disappear as customer demand grows.

Demand kicks in

Farm machinery sales were strong in 2004 and 2005. But 2006 was a dud, at least when it came to sales of agricultural power equipment. Sales of 100-plus-hp 2-wd and 4-wd tractors were down almost 20%, and combine sales were off 8% from 2005. That's according to data from the Association of Equipment Manufacturers (AEM), which tracks retail sales of farm power equipment.

Early 2007 didn't look much better, at least on the surface. Through March, sales of 100-plus-hp 2-wd and 4-wd tractors were down 1%. Self-propelled combines were the bright spot, posting a 15% gain.

Then, beginning in April, field tractor sales took off. By September (the latest figures available at press time), cumulative sales of 100-plus-hp 2-wd tractors — 14,518 in total — were up more than 20% from the previous year. September sales were up a whopping 85%, hinting at the end-of-season buying frenzy.

Sales of four-wheelers through September, which totaled 2,410, were up a more sedate 10%, including a 29% hike in September. Combine sales continued strong. Through September, unit sales were up 15% to 5,154 units sold. August and September sales were up 47 and 21%, respectively, compared to 2006.

Those are the numbers, but in the trenches, aggressive manufacturers and equipment retailers were moving forcefully early in the year to test the market and take advantage of market conditions that had turned decidedly positive beginning in the fall of 2006, when corn prices shot up at harvest.

As Bob Benters recalls, his customers weren't exactly in a buying mood early in 2007. Mostly, they were basking in the prospect of good times, but not quite ready to believe it was for real.

“When corn hit $4 a bushel earlier this year, we had customers who had corn left over from 2006, or were going to grow more corn in 2007, and had locked in a good profit,” he says. “We knew there was a good opportunity, so we jumped on it early.”

Benters, who owns Peabudy's Inc., a New Holland dealership in Sterling, IL, began pushing a zero-percent-interest program for larger New Holland tractors. By April 1, the pot of no-interest money was gone, but Peabudy's had sold 30 tractors. “If we wouldn't have had that program, we maybe would have sold six or seven tractors instead of 30,” he says.

Overall, Benters estimates that his 2007 business will be up about 30 to 35% from 2006 sales. In addition to a healthy increase in new tractor sales, new combine sales are up about 15%. Sales of new planters and tillage equipment have been solid as well.

Playing catch-up

While Benters at Peabudy's did an unusually brisk business in the dark days of winter, in general, the slow start for 2007 farm equipment sales roughly matched industry expectations, which didn't fully account for the improved economic environment.

The 2007 ag equipment industry outlook issued by AEM at the start of the year, which was based on surveys of key manufacturers completed in the early fall of 2006, projected declines in unit sales of 2.5 to almost 5% of 100-plus-hp 2-wd tractors, four-wheelers and planters. The bright spot was a 1.1% expected increase in combine sales. Underpinning the declining sales outlook was the estimation by a majority of respondents that net farm income would experience a moderate (or worse) decrease compared to 2006.

At about the time the survey was completed, prospects for net farm income began improving as commodity prices, especially corn prices, rose. In February 2007, USDA projected that net farm income for the year would climb to $66.6 billion, up from $59 billion in 2006. By August 2007, USDA projected that net farm income for the year would reach a record $87.1 billion, up 48% from 2006 and up 31% from its February estimate.

Generally, major farm equipment manufacturers won't comment on current sales or sales outlooks because, as publicly traded companies, such comments can affect stock prices. But quarterly reports from the major manufacturers — AGCO, CNH and John Deere — grew more optimistic as the year progressed.

“A lot of water went over the dam after we conducted the 2007 farm machinery sales outlook survey,” says Charlie O'Brien, vice president of agricultural services for AEM. “The numbers in the first quarter were flat. It was in that first quarter that things started to come on. They continue to show positive trends in all the categories except for small tractors.”

Early on, manufacturers were cautious, even though they knew the farm economy had turned decidedly positive, notes Kevin Bien, combine product manager for AGCO. “Our industry has taught us to be careful and cautious,” he says. “Nobody expected the market would be this hot. Then all of a sudden we got a spike. It has put a real strain on trying to meet demand that was greater than anticipated.

“All of a sudden, in the July period, we saw our sales take off,” he adds. “We had a great June, a great July and a great August, and it hasn't stopped.”

What's hot, what's not

As AEM sales figures point out, large tractors and combines are leading the pack in the 2007 sales surge. Given the hefty price tags of these key equipment pieces, they certainly will make the largest contribution to industry-wide gross sales increases.

Other key categories, including planters and tillage equipment, also are experiencing significant sales increases.

Many short-line manufacturers with planter and tillage equipment say their factories are booked solid through 2008 planting. In some cases, virtually all units are sold, although not all machines have been retailed.

“We are running as hard as we can run,” says Tom Evans, vice president of sales and marketing for Great Plains Manufacturing, Salina, KS. “We have had double-digit growth in three of the past four years. It is definitely going to be double-digit again this year.

“I don't have any equipment [in the lineup to be manufactured] that doesn't have an order to cover it clear into May,” he adds. “Typically, this time of year [early in the final quarter], if we are lucky, we have 60% of our forecast covered with orders. We are writing orders clear into the fall of 2008.”

At Kinze Manufacturing, Williamsburg, IA, demand for planters has been building since shortly after the 2007 crop went in the ground, says Dennis Whitehead, sales and marketing manager. “We began to see the optimism then, and it has continued to build,” he says. “We see a good deal of our increase in the large-frame planters, particularly in the 16-row and 24-row sizes.”

Dealer tales

In central Iowa, sales increases have mirrored the national trend. Demand for large tractors, combines and planters has been strong, says Gene Willis, manager of Ryerson Implement, a John Deere dealership in Story City. Although most customers booked purchases well ahead, he expects a flurry of new tractor and used equipment sales through the end of the year. “For some people, a tractor is still an impulse buy,” he notes. “It just depends on whether they think they will have an extra $40,000 to $50,000 and want to do something to adjust their tax situation.”

He thinks new equipment sales might have been even stronger if it weren't for a glut of used large combines and 400- to 500-hp tractors. “I don't know that we as a dealer network can necessarily sell all the new equipment that everybody might demand,” he says. “There continues to be a challenge for late-model large used items to be absorbed in the marketplace — very large tractors and very large combines.”

Ryerson's solution is to convince more customers to adopt a three-year trade cycle instead of trading more often. “That puts more pressure on our service department, but we know we are up to the challenge,” he says.

In addition to brisk sales of big-ticket tractors, combines and planters, Ryerson also is experiencing strong demand for tractor guidance systems and automatic row shutoff systems for planters, which typically offer a two-year payback in seed savings and extra yield, Willis says.

Given a rainless July that hurt area crops, sales have been surprisingly strong at Miller Sellner Equipment, a Case IH dealership in Bingham Lake, MN, says sales manager Wayne Redman.

“Most guys figured we would have a crop disaster,” he says. “But yields are a lot better than expected, and most people contracted grain at good prices. Right now, the farmers' outlook is excellent.”

Earlier in the year, combine sales were strong. But tractors have had strongest demand this fall, he says. “The product that seems to be the hottest is tractors — the big mechanical front wheel drives with autosteer.”

Although industry-wide sales were down in 2006, last year was Steve Manzer's best year ever. This year is turning out even better, says Manzer, who manages Manzer Equipment, an AGCO dealership in Osmond, NE.

“Our sales volume is going to be up considerably over last year, says Manzer, who added staff to expand his trade territory in 2006. “Customer attitudes are much better now than they have been in recent years. Last fall is when it started.”

Combines and 75- to 155-hp tractors are market leaders for Manzer, who notes that sales were strong for the first six months of the year — and then they got even stronger.

To meet customer demand, he has sometimes had to scramble. “We have been able to find equipment by sourcing from other dealers,” he says. “I think there is enough equipment around to meet the fall demand.”

In the long term, he senses that the whipsaw effect of off-again (2006) and on-again (2007) equipment sales years underscores the need to plan purchases ahead of time.

“Manufacturers have been talking about building to order for years,” but they haven't always had the discipline to follow through, he says.

2008 outlook

Although times are good, agricultural equipment retailers like Manzer worry about 2008. “I think 2008 is going to be trickier,” he says. “I am a little nervous. Even though it appears we are going to have good commodity prices, we are going to have substantially higher costs, especially land rent.”

“Sales in 2008 will be above average, unless something dramatic happens,” adds Benters, the Illinois equipment dealer. “But we have taken a lot of sales and moved them forward and out of the market in 2008.”

A recent survey of U.S. and Canadian ag equipment dealers supports a positive, but cautious outlook for 2008. About 90% of the 500-plus dealers responding to a 2008 business trends survey conducted by Farm Equipment magazine said they expect 2008 sales to be as good as or better than levels seen in 2007. On average, they expect sales of new and used equipment to be up about 2.5%.

AEM's 2008 outlook report, which was released in October, also projects that U.S. farm equipment sales will continue to grow next year. Large tractors, combines and planters will again experience the most growth, according to the report, which was based on surveys of manufacturers.

Not all equipment categories will be up, however. Sales of tractors under 100 hp are expected to be flat, while sales of forage harvesting equipment, balers and mower conditioners are projected to be flat to down as much as 4.5%.

AEM outlook survey respondents expect 2008 net farm income to be up over 2007's record levels. Some 62% of respondents said net farm income would be up “modestly,” while 21% expected a “significant” increase.

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