Tractor and combine sales are starting to dip below the five-year average, according to data from the Agriculture Marketing Resource Center (AMRC). What does this mean for farmers and farmers in training? How can these individuals adapt to the changing market? This article will answer those questions and more!
Expected Reasons
For many years, farmers have benefited from increased efficiency in both tractors and combines. Today’s tractors can carry more weight than ever before, enabling farmers to cover more ground with less equipment. Meanwhile, today’s combines offer faster harvesting times at lower costs, allowing farmers to bring in crops quicker while spending less on machinery. However, these two trends may be coming to an end. In recent months, manufacturers have begun producing larger tractors that are capable of carrying even more weight—meaning that farmers will soon be able to cover even more ground without purchasing additional equipment. At the same time, manufacturers have also begun producing combines that harvest crops at even higher speeds—meaning that farmers will soon be able to spend less time harvesting their fields while still bringing in a full crop load.
Last Year’s Results
In 2018, farmers purchased a total of 528,000 tractors, combines, self-propelled sprayers, tillage tools and other farm machinery. This was an 11 percent drop from 2017 totals. A number of factors contributed to last year’s decline in sales. Weather conditions across much of America were less than ideal for planting and harvesting crops, which meant many farmers had to put off purchasing new equipment until they could get their fields back into shape. Additionally, trade disputes between China and American agricultural producers caused crop prices to fluctuate wildly throughout 2018—and with so much uncertainty in place, many farmers decided it would be best to wait out these issues before making major purchases. Finally, many farmers have been concerned about President Trump’s tariffs on foreign steel, as well as his threats to impose additional tariffs on Chinese goods. With some U.S.-made products already more expensive due to higher steel costs, a 25 percent tariff on imported Chinese goods would raise costs even further for U.S.-based manufacturers and suppliers—which might make them hesitant to invest in additional production capacity or hire more workers.
This Year’s Estimates
Farmers will be purchasing fewer tractors than they did last year. Many buyers, who bought new tractors late last year, won’t be needing new equipment until fall of 2022. This means farmers will have less money to spend on new combines, which are more expensive than tractors. With lower demand and so many people coming off leases for used equipment later in 2022, expect sales to drop even further compared to previous years. It may seem odd that an industry with so much profit is down, but when you look at how much farm equipment costs, it makes sense. New combines can cost over $300,000 each; combine maintenance costs hundreds of dollars every time you use it. For smaller farms that need only one or two machines a year, buying used equipment can make a lot of sense financially. The average farmer spends about $350,000 per year on machinery—combines are typically about half of that price. If you don’t need a machine for several years, leasing is another option. Leasing allows farmers to pay monthly installments without having to take out a loan. The upfront payments aren’t as high as if you purchased outright, and there aren’t any additional taxes or fees associated with leasing versus owning your own equipment.
Assumptions for Future Growth
The question is why tractor sales dipped below 5 year average. When you consider factors such as price, fuel prices, cost of land and other machinery involved in farming it makes sense that these sales have fallen over 5 years. However, there is one factor not mentioned above which could be contributing to lower than expected sales. That factor is farmer confidence. Many farmers may feel they need to hold off on buying new equipment until they see what happens with trade negotiations between China and United States. If farmers feel confident about future growth then we should see an increase in tractors sold during next couple years if nothing changes with trade agreements between US and China. On a side note, its also possible that tariffs imposed by Trump administration will make Chinese manufactured tractors more expensive to purchase here in America. This would help boost US manufactured tractor sales at least temporarily.