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Forecasting in an era of unknowns

Food & Agriculture Policy Research Institute estimates farm income to drop roughly 11% from the USDA's original 2020 projection.

USDA forecast a $3.1 billion increase in net farm income for 2020 before COVID-19 emerged in the United States and commodity prices plunged.

USDA hasn't issued another forecast, however, a private forecast from the Food & Agriculture Policy Research Institute estimates farm income to drop roughly 11% from the USDA's original projection.

That kind of sudden, unexpected reversal of fortune typically leads to one thing: demand shock. That is one reason why many economists are now talking more about a U-shaped recovery curve than a V-shaped curve. Still, it is nothing more than a guess since so many unknowns persist.

"Trying to figure out the true extent of COVID-19's impact is like staring into a deep, deep mist," said Association of Equipment Manufacturers Director of Market Intelligence Benjamin Duyck.

Potential scenarios

In the meatime, Duyck offers analysis of the "U.S. Ag Equipment Forecast" from Oxford Economics, a leader in global forecasting and quantitative analysis. Oxford generates forecasts for a variety of potential scenarios. Its baseline forecast calls for a 15% decrease in gross U.S. ag equipment output in 2020, followed by a strong rebound in 2021. Oxford's most negative outlook pegs this year's decline at 26%. "But even those more negative outlooks have us rebounding 6-10% in the following years," Duyck said.

Equipment sales

Speculation aside, existing data shows the stinging impact of COVID-19 in the month of March.

AEM's monthly "U.S. Ag Tractor and Combine Report" shows that farm tractor unit sales were down just under 1% for January-February as compared to the previous year. In March, sales plunged 15.6%. Self-propel combines had a rougher Q1 all around. Sales were down 22.6% in January-February, and another 11.9% in March. "Although the March numbers were likely impacted by COVID-19, it is still too soon to tell the ongoing impact of this crisis on ag equipment sales," Duyck said.

April's data showed signs of promise. Farm tractor unit sales were up 12.3% from April of last year. Self-propel combines climbed 4.1%.

CEO survey

In April, AEM conducted a survey to gauge the attitudes of equipment manufacturer CEOs. Nearly everyone (95%) felt that COVID-19 was having a "very negative" impact on the overall economy. However, far fewer (57%) felt like the equipment industry was being hit in a very negative way. Furthermore, less than half (45%) felt like their individual company was being hit unusually hard, and just 31% felt like their supply chain was being very negatively impacted. Generally speaking, the majority of CEOs felt like COVID-19 was having a "moderately negative" impact on the ag equipment business environment.

Roughly 62% of CEOs anticipate improvements through the remainder of the year, while just 11% see things as getting worse. Roughly 27% expect things to remain the same.

Source: Association of Equipment Manufacturers, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. 
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