Ag Equipment: How Long Will the Boom Continue?

Agriculture and construction equipment manufacturers are particularly upbeat about the prospects for future sales. Results from AEM’s Q2 member survey were just as strong as the first quarter.

“Member perceptions showed a bit more stability in some spots and perhaps a slight decline in other areas of our industries but, overall, they showed great progress,” said Benjamin Duyck, AEM Director of Market Intelligence.

AG EQUIPMENT EXPECTATIONS

Agriculture equipment manufacturers aren’t concerned about the recovery being thrown off track. Roughly 76% of the Q2 survey respondents reported growth compared to the previous quarter. An even stronger 87% reported growth compared to the previous year. Looking forward, 90% think growth will continue for the next 12 months.

While most AEM members expect growth to continue, the general consensus is that the rate of growth will slow a bit. In looking at the total of all ag equipment categories, 6-10% growth is expected over the next 12 months, whereas 11-15% growth was experienced over the past year.

Here’s a closer look at the individual ag equipment categories:

• Trailers and transportation equipment grew more than 20% (16-20% expected).
• Components grew 16-20% (11-15% expected).
• Equipment for working soil, seeding, fertilizing and plant protecting grew 16-20% (6-10% expected).
• Loaders and material handlers grew 11-15% (6-10% expected).
• Tractors grew 11-15% (6-10% expected).
• Harvesting equipment grew 11-15% (11-15% expected).
• Lawn and garden equipment grew 11-15% (stability expected).
• Irrigation and sprayers grew 6-10% (1-5% expected).
• Livestock equipment grew 6-10% (1-5% expected).

Even while enjoying this widespread growth, agriculture equipment manufacturers are facing some challenges. Finding skilled labor is the biggest. Keeping up with demand has also been daunting. More than half of survey respondents said inventory levels have declined mid-year, and roughly 60% now report levels that are too low.

“While production has been up, I feel this can cause issues as the backlog is getting bigger, as well,” Duyck explained.

While much remains to be seen as to which economic scenario ultimately plays out over the next several months, the agriculture equipment industry has several things working in its favor. Farm income and capital spending have each risen sharply since mid-2020. Each have moderated to some degree, and income is now surpassing capital spending. Healthy farm incomes are being fueled by healthy farm prices. The 2021 prices farmers have been seeing are the highest since around 2014-15.

U.S. MARKET REMAINS STRONG

The U.S. market has been a real hotspot for ag machinery activity, particularly when compared to other developed countries.

• United States: 27% growth this year (3% expected 2022).
• Japan: 5% growth this year (2.8% expected 2022).
• United Kingdom: 3% growth this year (6.3% expected 2022.
• Eurozone: 1% growth this year (4.1% expected 2022).

It’s equally important to look at what has been happening in emerging markets:

• Brazil: 4% growth this year (3.3% expected 2022).
• Russia: 9% growth this year (-2% expected 2022).
• Eastern Europe: 8% growth this year (8% expected 2022).
• India: 1% growth this year (4.1% expected 2022).
• China: -41.5% growth this year (26.9% expected 2022).

This year’s explosive growth in the U.S. has allowed ag equipment sales to reach their highest point since around 2012.

Despite some headwinds, U.S. ag equipment manufacturers have held their own on the global stage, as well. High export prices have been a big challenge. Import prices have also been increasing at a steady pace, and they are now back up to where they were a few years ago. Export pricing continues to climb, though, and could be making U.S. manufacturers less competitive.

Regardless, farm machinery and equipment has been leading the overall global ag machinery industry. Growth of 10% is expected this year followed by continued growth in 2022. Conversely, lawn and garden equipment are contracting by 3.8% this year and another 0.5% next year due to lower consumer confidence in the general overall economy.

EDITOR’S TAKE:

Pretty much what we have been saying all along, the ag economy is performing well, demand for ag equipment is high and the overall economy is slipping. Farmers should experience higher net farm income this year and that will carry demand through this fall and well into next year as well. This is precisely why we are asking CAD members to “Look Beyond Your Lot”. Look past today’s situation with supply and down the road to where supply is “normalized”. While consumers may not be in such a buying mood with inflation and higher taxes staring them in the eye, farmers, on the other hand, will have money to spend and would rather purchase new buildings, equipment or trucks versus giving it to Uncle Sam. Think about who your best customer will be….