Ag machinery sales are taking a hit as farmers’ balance sheets tighten, but the equipment industry has been preparing for the downturn.
“Over the course of history, the price of corn and the sale of tractors over 40 horsepower tend to track one to one,” Association of Equipment Manufacturers (AEM) Senior Vice President Curt Blades told FarmWeek. “And we know corn prices are down right now, so it is to be expected.”
AEM’s August equipment sales report showed total sales of ag tractors in the U.S. dropped 19.4% and combine sales fell 19.6% from a year ago.
Blades said the industry learned some hard lessons from the most recent economic downturn and is better prepared for this next phase in the cycle.
“Manufacturers have been working closely with the dealers to understand what the supply chain needs are and what the market demand is,” he said. “The last thing you want is too much inventory at the dealer lot because that has a negative impact on the dealer, used prices and the rural economy.”
A report by Moody’s Ratings suggests the three largest agricultural equipment manufacturers (AGCO Corp., CNH Industrial and Deere & Company) are better positioned to deal with weakening demand compared to the 2014-16 downturn.
“We expect that, even in the face of significant declines in revenue, EBITA (earnings before interest, taxes and amortization) margins in 2024 will remain in the 9-20% range for all three companies, thanks in part to key operational changes, good cost management and more flexible manufacturing processes,” the report said.
The report showed the top three manufacturers are cutting back sharply on production in 2024 to decrease inventory levels in preparation for 2025.
Blades said the manufacturing industry is also focusing on options that farmers want and the variety of advantages they look at when considering equipment.
For example, Blades said this generation of machines is 20% more fuel efficient than the previous generation, allowing farmers to reduce diesel costs.
“Farmers see these as business decisions, not just emotional decisions, and they are investing in technology to make sure that they are as operationally efficient as they possibly can be to survive those downturns,” Blades said.
Seth Crawford is the general manager of PTx, a business unit of AGCO. He told FarmWeek that investing in companies like Precision Planting and Trimble has helped them remain innovative and focus on farmers’ needs.
“They’re the innovators that feed that dedicated channel which helps us gain traction with those innovations, so it’s a nice reinforcing cycle,” he told FarmWeek. “We’ve been able to operate (PTx) independently, and it’s helped our growth.”
Crawford said the Precision Planting division allows the company to bring technologies to market that help farmers enhance their existing fleet of equipment.
“So they don’t need to make that big capital investment. They can make a small investment with a fast payback that can bring them an almost instant return in one operating cycle,” Crawford said. “And we do that in a scalable way to help the farmers achieve profitability even in the most difficult times.”