Farmer Iron
Equipment industry setting course into new waters in 2016

Equipment industry setting course into new waters in 2016

We haven't seen a situation like this in some time, we try to look back, and ahead on the issue of iron.

It's kind of interesting writing an equipment-focused column during a market slump. You see things you've never seen before, or at least not in several years. Like the rise of certified pre-owned programs for used equipment and the related growth of used inventory; and the creeping up of the new inventory, though companies continue to watch those levels.

Even though sales have slid in 2015, the numbers closely mirror the five-year trendline.

What does all this mean for your operation? First let's look at last year, a quick recap since the stats for the year weren't available by press time for February. You can see the chart on this page and that black line (ironically) is 2015. However, note how it so carefully follows the usuall pattern, and in fact it was ahead of the 5-year trendline for most of the year. That is thanks mainly to a resurgence in the sale of small tractors, bigger machines and combines have lagged all season.

Last year during the Farm Progress Show, Jim Walker, who head up North American marketing for Case IH, shared that 2015 would not have looked so bad if there hadn't been a 2014. This is not a surprise, the end of a sales boom often includes an almost bubble year of sales.

That happened the last time the industry had a big rush in sales in the 1970s. Sales in 1979 were record-breaking for the time, yet later you would talk to a machinery exec and they would say "things wouldn't look so bad if we didn't have 1979. Is 2014 that 'bubble' year? Perhaps.

A quick recap

A quick look at the ending year stats showing performance through December from the Association of Equipment Manufacturers shows that compact tractors have rebounded in sales. Under-40-hp tractor sales were up 8% last year. That compares to an annual drop in 40 to 100-hp machines of 2.9% and a big slump in over-100 hp machines of more than 25% for the year.

As you move into bigger sizes, the slump was even tougher. Four-wheel drive tractor sales fell 39% in 2015, and combine sales slid 32.5%.

And new equipment inventories are fattening up some too. Total inventory figures for tractors are up over 7 months, but the pipeline tends to fatten some in anticipation of sales in the spring. The industry has done a much better job of keeping the lid on inventories than in the past.

Essentially 2015 was not a year to write home about if you sold equipment. For buyers, with rising used inventories there may be some buying opportunities out there - but let's remember there's a reason for the slump: falling commodity prices.

Looking ahead

That brings us fully to 2016, a year with a glut of corn, soybeans and wheat weighing on your pocketbook, and filling your bins. During the Farm Futures Summit in January there was a lot of gloom and doom talk, but also some interesting attitudes.

During the Bear Pit speaker session one farmer asked the panel where they saw opportunities to expand, ways to grow the farm business. Perhaps it’s the very question that caught my attention. When all the numbers seem lined up against you that's when you start looking for opportunities.

It's  not easy to do, but they'll be out there; and if you have the capital to pounce you'll be doing something pretty cool - buying closer to the bottom than the top. While land prices may not feel that way now, the market is getting softer.

We already know that the average business farm operation probably has enough flex in labor and equipment to pick up a decent parcel of land to farm without adding equipment. Sounds like a good idea, but keep that machinery headroom - as I call it - handy. Nature has a way of taking all the flex out of your plans.

No more advice here other than to keep your eyes open for opportunity, and I don't mean cost-cutting. Long-term no business can save its way to prosperity, that's true in any industry. Wish you a safe planting season and the hope of a solid financial performance for 2016.

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