Our databases include information for tractor sales derived from AEM’s monthly Flash Reports that date back to 1969, USDA reported net farm income that dates back to 1969 and U.S. Department of Labor’s GDP data that date from 1970. We also house information from USDA Agricultural Censuses from 1978 to 2012. The data from the 2017 Agricultural Census is unavailable at this time and is expected to be released on Feb. 21, 2019. All of this data is essential in making a reasonable forecast for the industry.
Our models consist of historic data models that track net farm income, net farm cash income, commodity prices, currency exchange rates, worldwide agricultural market data and other factors that influence the purchase of tractors and combines in the U.S. These models undergo regular examination to make certain that they are tracking the changes that occur in the markets over time and often require some adjustments that range from minor tweaking to major overhauls, depending upon the changes observed.
Under 40 Horsepower Tractors
For the past decade, this category of tractors has generated more than 50% of the total unit volume of tractors sold in the U.S. and this segment has continued to climb in light of the weak sales for the larger tractor horsepower classes in recent years. We expect this category to produce approximately 65% of the total number of tractors sold in 2019.
The purchasers of these tractors, for the most part, are not farmers and derive their income from sources other than farming operations. It has long been recognized that sales of this category of tractor is driven by the general U.S. economy and the state of the agricultural economy is of little or no influence.
The current U.S. economy has been growing at a rate of 3% or greater per quarter this year and job growth has been moving ahead as well. Coupled with modest wage growth, these factors point to an equally strong economy in 2019 and also indicates continued growth in this category.
These buyers view their tractors differently than does a typical production farmer and historically have traded tractors at a much faster rate. This equipment is used less than a tractor utilized in production farming operations and our estimate of hourly usage is approximately 75 hours per year.
2019 Retail Outlook 161,578
Projected Inventory 79,173
40-100 Horsepower Tractors
Our models have indicated that the lower third of this category (40–60 HP) is driven primarily by the general economy and the purchasers of these tractors are generally Lifestyle Farmers. As we have reviewed our models for this category, we found that the U.S. general economic conditions had a much more significant impact on the sales of these tractors than previously shown. Many of the farmers in this group of buyers have at least one member of the household employed off the farm and that has magnified the ability to purchase equipment in what appeared to be down times for the agricultural economy.
Commodity prices certainly do exert an influence on the purchases from this group of farmers and the current tariff discussions have had a negative impact on the agricultural production income for these purchasers. The reduction in the purchase of U.S. produced grains by China resulted in a decline of nearly 20% in soybean prices since last May and many of these farmers are soybean producers.
The current trend in sales of this category is moving to the upside and the positive influence of the Lifestyle Farmers will provide reasonable growth in this segment in 2019.
2019 Retail Outlook 59,646
Projected Inventory 37,742
2WD 100+ Horsepower
The purchasers of this category of tractors are certainly subject to the weakness in the agricultural economy but, like those of the smaller horsepower tractor categories, they also have some off-farm income to supplement their total income. The long term trend for this category turned positive in 2018 and should continue into 2019. The larger farm operators in this category produce more income than is required for household expenses and that has contributed to the upward trend in 2018.
Commodity price levels certainly have a major impact on this group of purchasers and lower prices recorded in recent months have had an impact on the level of purchases made for these tractors.
2019 Retail Outlook 18,747
Projected Inventory 8,774
This category of tractors exhibited a significant turn to the positive in 2018 and broke out of the downward trend that had been developing for the past several years. The purchasers of these tractors are the largest farmers and ranchers in the country and generally produce the most net profit from their operations. This additional income allowed these farmers to make purchases in what appeared to be down times. Even some of these operators have some non-farm income and that provided additional capital with which to purchase equipment in 2018.
Last year our models suggested a base-building period in 2018 but it now appears that the trend actually started in 2017 and that 2019 could witness slightly stronger sales results. The current tariff disputes have had a negative impact on these producers but their ability to manage their operations in a profitable manner has helped to negate those effects.
2019 Retail Outlook 3,088
Projected Inventory 918
Combines also broke out of the downward trend in 2018 and has shown a positive move to the upside this year. These units are purchased by many of the same buyers as are the larger horsepower tractors and have the same dynamics affecting their purchases.
The difficulties surrounding the tariff struggles of late have certainly had a negative effect upon this equipment but as negotiations with various nations have come to a conclusion, those effects have softened. China’s soybean purchases during 2018 have had a major impact on combines and any movement toward solving that dispute will be positive for this category.
2019 Retail Outlook 5,075
Projected Inventory 1,048
As we have done in the past, these total numbers will be our forecast for 2019 and we will provide the monthly forecasts after the release by AEM of the December Flash Reports in early January 2019.