The opening line to a recent Wall Street Journal early morning guide to the day’s top news read “… investors face geopolitical uncertainties …” Well, WSJ readers, welcome to our world.
There is one thing that is certain about uncertainty. It is that nobody likes it. Not investors or farmers, and from our corner of agriculture, farm equipment dealers and manufacturers. Nonetheless, it’s what we’ve got to work with these days.
The 2020 Dealer Business Outlook & Trends report has just been released to Ag Equipment Intelligence subscribers. (You can read some of the highlights of the report in the Oct./Nov. issue of Farm Equipment.) There’s little doubt that current trade issues have added to agriculture’s usual uncertainties (weather, commodity prices, etc.) and everyone is guessing about the potential outcome. One dealer summarizes the quandary that dealers are confronting with the current trade conflict with China: “This has created a holding pattern in the market and much uncertainty about if or when to make [buying] decisions.”
In its most recent survey of U.S. farmers, Purdue University researchers noted that, 72% of the 400 growers surveyed remain confident that the ongoing trade dispute with China will ultimately be resolved in a way that benefits U.S. agriculture.
The question is when will it get resolved. No doubt the confusion about where it’s all going is playing a significant role on how dealers view their prospects for 2020.
Overall, North American farm equipment dealers are more optimistic about 2020 than are pessimistic, but they’re not quite as optimistic as they were a year ago. A little under 42% of the dealers in the most recent Ag Equipment Intelligence survey expect new equipment revenue to improve by 2-8% or more next year. A year ago, nearly 46% expressed the same sentiments about 2019. The biggest difference between the responses this year and last is the percentage of dealers who are forecasting a drop in new equipment revenues. A year ago, a little under 14% expected declining new equipment revenues for 2019. This year that number rose to nearly 22% of dealers who are forecasting a drop off in new equipment sales.
Tariff and trade issues finished at the top of the Canadian dealers’ list of biggest concerns going into the new year, with about 15% reporting that it was of no concern to them. It is #7 of U.S. dealers’ biggest worries for 2020, but less than 13% of U.S. dealers indicating it was of no concern to them.
Some analysts are looking beyond trade and believe the next year could produce some positive results for ag machinery sales. Mircea (Mig) Dobre, analyst with RW Baird, told investors in a note earlier this month, “North American Ag replacement demand continues to build … A poor 2019 planting season sets the stage for higher agriculture commodity prices, and in turn, large Ag equipment (row crop) investment.”
Stanley Elliott, analyst for Stifel also sees an upside for farm equipment going into 2020. “In North America large ag, equipment demand remains below mid-cycle levels, but dealers appear to be in the process of destocking inventory following re-stocking in mid-2018 and into 2019. Price/cost appears increasingly favorable as a robust farm machinery PPI (+4.1% year-over-year in August) continues while input costs (both materials and components) appear to be moderating.”
One other factor to keep in mind while looking ahead to 2020 is that dealers often outperform their forecasts. Last year at this time, about 46% of dealers were expecting an improvement in new equipment sales during 2019. When we asked them how they actually did in 2019, 53% reported to increased revenues.
Also, slightly more than 87% of all dealers responding to this year’s survey say they will be in the black for 2019. This is down by about 2% from the previous year, but not bad when considering some significant obstacles in our way.
There is little we can do about the trade issues currently clouding our view for the coming year, so our best bet is to take care of what we can control. The two that come to mind are our customers and our costs.