America’s agricultural economy is spiraling, and it’s dragging the farm equipment industry down with it. The two are intrinsically linked. While this might at first glance seem like more gloomy news during a particularly bleak ag economic period, farmers who are positioned to buy now could take advantage of decreasing machinery prices.

With an excess of inventory, some dealers are slashing price tags to move machines off the lot. Used-sprayer inventory, for example, is up 40% over last year. With so many newer models, there’s an influx of equipment at auction.

“We are still seeing softness across the subcompact tractor market after years of strong sales,” says Curt Blades, senior vice president of the Association of Equipment Manufacturers. “We know the challenges facing the market are complex.”

AEM’s latest market report notes a downturn in equipment sales across the board, with the exception of four-wheel-drive tractors. Total ag tractor sales are down nearly 12%. Combine sales are down 17%.

Sandhill Global’s most recent monthly used-equipment price report has tracked a similar trend.

“Current market conditions are similar to those we experienced in 2015,” says Ryan Dolezal, manager of  TractorHouse. “We’re now beginning to see major declines in farm equipment prices as more inventory floods the market.”

Notable findings in the report follow:

Following a cycle

Chad Hart, an economics professor at Iowa State University, isn’t surprised by the downturn. The ag economy is cyclical, he says. A downturn was inevitable.

“We’ve been watching farm incomes over the last few years slip down from record highs,” Hart says. By the end of this year, USDA projects farm income will have decreased by more than 25% from 2023.

The dip in farm income has led to layoffs in the machinery sector: “Looking at the ag machinery side of it, Deere was one of the first to move to look at layoffs given the downturn of sales,” he says.

Other brands, including Agco and CNH, have also let employees go.

But while the layoffs are driven by tightening budget demands, Hart says more might be going on. Farm equipment brands are betting on technology to help farmers meet future needs, and they’re evolving from hardware manufacturers into tech companies that produce machinery. A good example of this is Agco’s recent launch of PTx Trimble, which retrofits its technology onto existing machines and doesn’t sell any iron. The workforce is likewise evolving.

“What you’re seeing is a rebalancing of where jobs are within the sector,” Hart says, noting that machinery brands are taking advantage of current economic conditions to restructure for the future. “That was happening before the layoffs. It’s not that these had to happen together. I would argue that one was already happening with the downturn of sales. Then the layoffs came.”

The natural downturn is being seen as an opportunity to restructure. Agco, for example, expects to cut up to 6% of its salaried workforce this year. Along with layoffs, equipment brands are migrating some manufacturing lines elsewhere, while keeping innovation within the United States.

There are other factors at play. For one, high inflation costs are driving up prices across the board. And assembly lines have finally caught up on pandemic-related backorders — just in time for the market slowdown. The extra equipment has created a logjam on dealer lots.

Downturn could be short

While the ongoing downturn makes headlines and causes concern among growers, Hart says he’s not overly worried about it long term. That’s because the driving factor behind it is plentiful supplies. Demand, meanwhile, remains high.

“I’m less concerned than when we’ve been at other downturns,” he says. “When I look at some of the root causes that are causing the downturn right now, they’re more supply-related than demand-related. I find that supply issues are easier to work out than demand problems.”

That being said, Hart says downturns take about two to three years to work themselves out. The current conditions might be here to stay for a while. That means that farmers should expect current trends in the farm equipment industry to continue for the foreseeable future. The two will always be intrinsically linked.

When farm income drops, “we tend to see layoffs across the ag sector,” he says. “In that sense, this is not a rare occurrence. It’s something that occurs usually once a decade.”