State of the Industry

1 Sep 2015

By Jim Patrico
Progressive Farmer Senior Editor

DECATUR, Ill. (DTN) -- It's become traditional at the Farm Progress Show for Jim Walker, Case IH's vice president for North American ag equipment sales, to provide the ag media with a quick look at the state of the farm equipment industry. Monday's assessment was realistic and --cautiously -- optimistic.

In reference to the used combine market, for instance, Walker said, "I feel more comfortable now. It's going in the right direction. Dealers are starting to feel they can put more into a used combine and get more out of it."

This came after Walker reviewed the industry from 2012 ("We all wished we could have stopped there.") to 2013 (when new combine sales jumped from 10,000 units in North America to 13,700) to 2014 (when the combine market slowed and used values "started to retreat") to 2015 when new combine sales are forecast to be around a mere 7,000. That translates into a 49% decline in new combine sales in just two years.

Manufacturers expected and planned for a downturn. But "2013 made the cliff a little higher than we would have liked," Walker said.

Compounding the glut of used combines and other large equipment are the Tier 4 engines many of them carry. In years past, South America was an important release valve for large used North American equipment. But the diesel fuels available in South America don't meet quality standards necessary to feed Tier 4 engines. A few tankfuls could be fatal.

Still, values of used combines have started to stabilize, and dealers are becoming more willing to take them in trade, Walker said.

Other used equipment segments have also suffered, Walker said. New high-tech planters, for instance, leaped off dealers' lots in when commodity prices soared. But when commodities crashed and the buying spree stopped, "Used 24-, 36-, 48-row planters.... There was no place to go with those," Walker said.

The same scenario played out with sprayers. Before the upturn, the large sprayer market was 60% custom applicators and 40% farmers, Walker said. Those numbers reversed as farmers' cash flow swelled through 2013. But, "As soon as commodity prices withdrew, producers backed off buying and wanted to trade off their sprayers," Walker said. That put a lot of used sprayers on the market and values dropped.

The values of high-horsepower tractors have declined, but not severely, Walker said, and row-crop tractors "have managed to remarket themselves nicely."

A bright spot for machinery manufacturers is all things related to livestock. New utility tractors and hay and forage equipment are enjoying a strong run, and that is important to full-line companies like Case IH. It helps pick up the slack.

To aid dealers with the slump in other segments, manufacturers have introduced certified used equipment programs to make machines on back lots more attractive. They have also encouraged leasing, initiated deferred interest programs and offered reduced interest rates.

Walker cautioned, "It will take us some time to get out of this downturn." But "We are weathering it... manufacturers and dealers."

Jim Patrico can be reached at jim.patrico@dtn.com

Follow Jim Patrico on Twitter @jimpatrico

(CC/AG)