Farmer Iron

The Hits Just Keep Coming

Farm equipment dealers show optimism so far for 2011.

Looks like farmer readers are in a buying mood, at least according to the latest survey of dealers by Henry Kirn, machinery analyst for UBS, the investment house. UBS has been conducting dealer surveys for years, and we've featured the results in this blog from time to time. This latest survey (Part 1 of Survey #28) offers some interesting insight into what dealers are seeing from their customers. I thought I'd share a few of those results with you.

The survey was sent to 2,200 John Deere, Case IH, Agco, and New Holland dealers in March and the results so far come from more than 300 respondents. More than 70% of those responding expect their sales to go up this year - with that majority responding "Up more than 5%" or "Up less than 5%." Only 12% responded with the "downer" response, and 17% say the market will remain flat.

Some of this could be due to regional issues, that's not clear from the results, but with more than 10,000 wildfires in Texas (a major equipment sales state), floods from Missouri to Louisiana and widespread drought in Western Kansas, there are areas where boosting sales might be a problem. And an analysis from Kirn shows that the Southest and Southern Plains showed dealers a little softer on the market.

Already in the first quarter of the year, Deere and Agco have reported big earnings, and dealers are optimistic about their second quarter prospects as well. About 44% of respondents expect second quarter sales to increase from year ago levels.

Interestingly, respondents think crop prices would have to drop pretty far before your buying appetite would slack off. In fact, dealers were asked if rising commodity prices would push sales higher and 88% of respondents agreed with that idea. Better prices mean more buyers.

Dealers were also asked at what commodity price level would farmer buying slow down. Based on 179 responses, dealers said corn prices would have to drop as low as $5.23 per bushel, before impacting full year 2011 machinery sales. For soybeans, 171 respondents say the price could fall as far as $10.50 before it impacted machinery sales. And for wheat, the magic price number would have to fall to $5.58.

This is an unprecedented time when the market fundamentals are going good for farmers (of course since you're making a profit, food prices are too high). And dealers see that as a sales opportunity. It will be interesting to see if the survey is right, but numbers I'm hearing tell me that your equipment dealer and those company suppliers are seeing solid orders.

There was some concern in the survey about combine inventories impacting combine sales with 56% of respondents expressing at least some concern about those inventories and how they would impact sales. With everything else so positive, this isn't a big scare, but watch combine sales closely to get an idea of how the market is doing going into fall.

A survey doesn't say you're ready to buy, but you can see the economic numbers for yourself. Is this a good time to invest in new technology? Given the added precision ag operating tools being offered on so many new machines, and now may be just the right time to upgrade. We'll keep watching the numbers.

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