From the WSJ's Corporate Intelligence blog:
- Bloomberg News
Sales of farm equipment wilted during October, foreshadowing a
long-anticipated decline in North American farm machinery demand next
year.
Retail sales of farm tractors in the U.S. and Canada slipped 1.5%
last month from a year ago, according to unit sales figures released by
the Milwaukee-based Association of Equipment Manufacturers. Sales of
high-horsepower tractors held up, rising 5% against a tough year-ago
comparison. But sales of the four-wheel-drive tractors, an expensive
tractor used mostly on large farms, dropped 18%. Moreover, sales of
harvesting combines crashed 28% from record volumes of a year ago.
The bull market in farm machinery that began about seven years ago is
gasping for air. If this really is the end, then it has been a
fantastic ride for a machinery industry that was stuck in a chronic rut a
decade ago.
Demand for equipment has been correlated to rising prices for corn,
soybeans and other farm commodities caused by increased production of
corn-based ethanol for auto fuel and rising crop exports to China and
other developing nations. The drought in the U.S. corn belt in 2012
extended the price run, pushing corn to an all-time high last year at
$8.31 a bushel.
Farmers flush with cash plowed it into equipment, taking advantage of
generous federal tax deductions for equipment investments to reduce
their taxable income. U.S. sales of new high-horsepower tractors have
grown 11.4% annually since 2006, triple the growth rate between 1999 and
2005, according to the equipment association. Sales of four-wheel drive
tractors, have risen about 15% annually since 2006, while combine sales
have expanded 8.1% a year.
But bumper crops this year have driven down commodity prices.
Corn has fallen 48% from last year’s high, shaving farmers’ incomes and
making them less willing to continue buying new tractors or combines at
the same pace....MORE
