It has been our custom to produce a calendar year forecast each November for the upcoming year. Following is our forecast for 2017.
Our database, which is based on the data published by the Assn. of Equipment Manufacturers (AEM) and their predecessor Equipment Manufacturers Institute (EMI), dates back to 1969, by month, for each category of tractor horsepower range. The advantage of such an extensive database is the ability to compare current sales and inventory levels against previous years to determine if there might be a pattern developing that would be useful for the industry’s forecasting efforts.
We utilize a series of forecasting models, each of which looks at a particular driver for tractor and combine sales. Some of these models address the current commodity pricing situation, stocks of U.S. grains and worldwide grain stock levels, input costs for producing the crops, net farm income levels for the previous year and the estimated level for current year and models that address the field inventory levels for each category. Each of these models will produce a slightly different result, but by combining and comparing those results we obtain our final forecast.
This preliminary forecast is for the full calendar year of 2017 but will not be spread over the various months until all of the monthly data for this year has been reported in January 2017. It is our position that these total numbers will be the final numbers for our 2017 forecast and they will not change as the year progresses.
As we were assembling the data for this year’s forecast I was reminded that we should simply follow the forecast as determined by the models. Last year, in my infinite wisdom, I could not imagine the larger tractors and combines falling as rapidly as the models projected and I made the decision to raise those forecasts and was proven embarrassingly wrong each month, so far.
<40 Horsepower Tractors
With the changing of the U.S. administration coming about on January 20, there is a hope of a significant improvement in the general economy. Should that occur, the growth in this category of tractor sales would be very positively impacted. While we have no way to definitively describe how those changes might come about. We haven’t ventured a guess on potential impacts in our 2017 forecast. This segment remains unique in the sense that the agricultural economy has practically no effect upon the sales of these tractors. It is the general economy movement that produces change in this category. The strength of the U.S. Dollar certainly has a decided impact on this category since many of the units sold are produced outside the U.S. and currency exchange rates will impact their selling price.
This segment is headed for record sales territory in 2017 and our models have indicated that the growth will be about 6% over the 2016 levels. Field inventory levels will increase slightly but will still remain within the same range as 2016 with about a 6 month inventory on hand at the dealerships.
40 – 99 Horsepower Tractors
Field inventory levels grew in 2016 for this segment but our models anticipate that those levels will decline slightly in 2017. The slower moving tractors of the higher horsepower variety will see retail sales without an equal replacement of field inventory next year.Our research has shown that the lower horsepower range (4 –60 HP) of this segment is driven by the same factors as the under 40 horsepower tractors and is not influenced to a great extent by the events within the agricultural economy. This lower horsepower range will be the driver for this segment. Our models indicated that this segment will have overall growth of about 2.5% in 2017.
>100 Horsepower 2 WD Tractors
This category of tractors is certainly influenced by the current condition of the ag economy. While this segment experienced a significant decline in sales in 2016, our models indicate a bottoming out, as well as a slight improvement of about 3% in 2017. Inventory levels have been basically flat for the past 18 months and we anticipate those levels will remain steady in 2017.
Field inventory levels have remained rather stable during the first 10 months of 2016 at about the 800 unit level and our models indicate that inventory will most likely remain in that range during 2017. This segment saw a significant decline in sales during 2016. It is greatly influenced by agricultural economic conditions. Our models indicate that this segment most likely saw a bottom in 2016 and we expect to see a slight improvement of 2% in 2017. An improvement in the general economy could easily produce a rising demand for agricultural products next year and most likely will generate an uptick in large tractor purchases.
Falling commodity prices had a devastating effect on combine sales during 2016. These units represent a significant percentage of dealers’ inventory investment. The prospects of high level of grain inventory in the U.S., and around the world, does not give rise to hope of increased commodity prices in 2017. There remains a minimal demand for replacement units each year and our models indicate that, like the larger tractor segments, combines have most likely reached a bottom and we could see a slight improvement of approximately 3% in 2017.
Field inventory levels have been declining for the past several years, but 2016 saw a stabilizing of those levels in about the 1,000 unit range. Our inventory models suggest that 2017 will see an inventory level of about 3 month’s supply during the upcoming year.
For all practical purposes, 2017 will most probably be a relative flat year in terms of retail sales as compared to 2016. The smaller horsepower units will represent more than 50% of total tractor sales next year and could become more of a shining star as the general economy improves under the new administration in Washington D.C.
There is every indication that farm debt will continue to inch higher next year and that will have a dampening effect upon equipment purchases. Even a slight improvement in the agricultural economy could result in a more positive year in terms of equipment purchases. While Section 179 bonus depreciation is available up to $500,000.00, farmers must first make a profit against which to apply those savings. It does appear that this tax advantage will have little impact on 2017 equipment purchases unless there is a significant improvement during this next year.