It may be like stating the obvious but 2015 farm equipment sales could be soft. Of course, the list of layoffs at the major manufacturers is a solid sign that they're pulling back quickly to avoid past mistakes.
In fact, in conversations at the National Farm Machinery Show and Commodity Classic, some of us "legacy" equipment followers talked about this latest downturn versus the historic collapse of the mid 1980s. And we all agreed that this time around, 30 years later, the industry seems to have learned some lessons.
Back then, when sales fell due to a number of reasons - the PIK program (remember that?), high interest rates and a lineup of other negatives, including falling crop prices and a sick farm debt situation - companies were slow to tighten their belts.
Recall, if you will, there were more companies then. There was an Allis-Chalmers, International Harvester, Case, John Deere, Ford Tractor, New Holland. It was that market slump that eventually created Agco, Case IH, John Deere and New Holland as we know them today. But back then, those companies continued to pump new equipment into the dealer pipeline even as sales fell. The result was a glut of equipment inventory on dealer lots that took some time to work through.
Today, as noted in an earlier column, manufacturers are apparently tightening their belts faster. And based on what the latest report from the Agrievolution Alliance has to say, they couldn't do it soon enough. That group is reporting that US sales could slide as much as 20% in 2015. That's pretty steep compared to some predictions, yet not out of the realm of possibility.
The report offers information for all the major equipment markets, but notes that "a realistic estimation for the entire North American market could be a decrease by one fifth in 2015, towards previous average levels." A key factor driving that return to "average" was the change in Section 179 expensing. Sure, Congress gave it back in the last two weeks of the year, but that just brought a last-minute flurry of buying for those who needed equipment.
To be strategic, that tax incentive - in some more advantageous form than a $25,000 election - has to be made permanent. Capital purchases like $500,000 combines are not impulse buys. Imaging that conversation: "Honey, let's go to the mall." "Ok dear, but I think we need to stop by the NAME YOUR BRAND dealer and buy a combine on the way."
So global sales will slide to 2.1 million units, with 50% of that in China and India, where the market is mainly smaller tractors. The broadacre farms of North America, Brazil and Australia will see softer sales. Yet we're weathering this downturn a heckuva lot better than we did 30 years ago. Bully for us.