Well if you have not heard yet, hear it now… companies like AGCO, Deere, CNH, and more are all cutting their forecasts for the year and projecting much lower than anticipated machinery sales. Weak crop prices have caused producers and harvesters to reuse their equipment another year rather than trade-in and upgrade. This does not mean that farmers are necessarily hurting, but rather taking a more conservative approach to spending this year with the weaker prices to ensure profitability.
I think most farmers would prefer weaker prices and higher yields, as they can better forecast their harvest volumes and estimate their income for the year end. Typically, high prices are a result of low yields at various places across the country or across the globe. Low yields is bad for everyone, less food to go around, crop insurance companies paying out large sums, less predictability on income for the farmer, and uneasy markets. The only people who benefit from high priced crops, are those fortunate enough to have had high yields during that same time period to capitalize.
The sliding machinery sales is not a bad thing for the farming industry as 2013 was the peak of the ag boom as of recent. It is just like any other stock market pull back that we typically see. I think the biggest trouble this time, is that machinery companies were not predicting this large of a pullback in sales, this quickly. Many of the ag machinery companies just finished expanding, upgrading, enhancing their product lines. Now, the markets have softened, fewer buyers are available, and the companies are overstocked with employees and large budgets.
As always, money always finds its way… and eventually the machinery companies will get things balanced and be ready to capitalize on future market upswings.