According to a recent news release from Alberta Agriculture and Irrigation, higher combine prices do not yet appear to have affected their sales in Canada. Increased market demand has driven higher sales each year since 2020. However, it noted, recent data suggests that combine sales, while strong on a year-to-date basis, tell a different story when measured year-over-year.

Good crop prices and record-high farm income may have previously buffered the effect of growing combine prices on buyer behaviour, the province said. That gravy train has since hit the brakes.

“Surprisingly, recent data from the Association of Equipment Manufacturers show combine sales in Canada up 5.7 per cent year-to-date in July, while U.S. sales are down nearly 18 per cent year-to-date,” read the release.

“Sales in Canada for the month of July 2024, however, are nearly 28 per cent lower compared to July 2023. This may indicate tougher market conditions ahead.”

The release also noted the technology-rich nature of newer combines, which may be playing into consumer demand.

“The level of technology has increased dramatically and newer machines are equipped with GPS, computer sensors and a range of automatic features,” it noted.

Inflation, unsurprisingly, is also playing a major role. Although the price of a combine has increased in real terms, general inflation has also “contributed substantially” to increasing sticker prices, said the department.

The release also referenced the effect of the exchange rate between Canada and the U.S. As of Aug. 29, the Canadian dollar is worth 74 cents of a U.S. dollar, according to Google Finance.

“Many combines sold in Canada are manufactured in the U.S., and so the exchange rate has an effect on prices as well,” the release noted. “Combine prices seem to be more suppressed when the Canadian dollar is strong vis-a-vis the U.S. dollar, such as the period from 2010 to 2012, than when the Canadian dollar is weak.”

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Shares of the world’s largest farm equipment maker rose six per cent, lifting peer Caterpillar, which also reported a profit beat last week amid moderating demand, nearly three per cent.

Higher prices, implemented two years ago following supply chain complications and a surge in demand for industrial and agricultural equipment, have helped U.S. machinery makers to shield their profits from an industry-wide slump.

“Deere’s pricing power was reflected well in Q3 as price helped to dampen impacts from contracting volumes,” CFRA Research analyst Jonathan Sakraida said.

Deere maintained its 2024 net income at about US $7 billion, even as sales of new machines have shrunk amid a decline in crop prices and high borrowing costs, which have also forced dealers to limit inventory restocking.

U.S. farm incomes are forecast to plunge in 2024 due to a sharp decline in commodity prices, heightened production costs and shrinking government support.

“By keeping inventories in check, we have been able to maintain solid price realization,” said Deere’s director of investor relations, Josh Beal.

Deere also said it expects an improved favorable price realization in its agriculture segments in 2024 compared to its previous targets.

For the third-quarter, Deere reported a net income of $6.29 per share, compared with LSEG estimate of $5.63, while net sales and revenue decreased 17 per cent to $13.15 billion.

“We’ve prudently and proactively adjusted production schedules in our large agriculture business at a faster pace than ever before, in order to reduce field inventory in our end markets,” CEO John C. May said.

Deere said in June it would cut some production jobs and reduce salaried employees to keep a tight lid on costs.

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The cuts will reduce “overlap and redundancy in roles and responsibilities”, Deere disclosed in a filing, following media reports from the past week about layoffs.

The news comes weeks after the company trimmed its annual profit forecast for the second time and projected steeper declines in sales of large agriculture equipment.

Lower crop prices are leaving agriculture equipment sellers with an excess of unsold tractors and combines, leading some to offer discounts and suspend new orders.

The U.S. Department of Agriculture has forecast farm income would slide 25.5 per cent to $116.1 billion (C$159.1 billion) this year from 2023.

In Canada, net cash income is forecast to decline 14 per cent to C$21.3 billion as cash receipts are forecast to fall slightly, with expenses modestly increasing, Agriculture Agri-Food Canada said earlier this year.

—Reporting for Reuters by Abhijith Ganapavaram and Nathan Gomes in Bengaluru, with files from Glacier FarmMedia

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Farm income is expected to slide 25.5 per cent to US$116.1 billion this year from 2023, according to the U.S. Department of Agriculture, set for a second consecutive annual drop, as corn and soy prices plummet and production costs increase.

Higher interest rates have also piled pressure on farmers, leaving equipment dealers with bloated inventories, prompting some to offer discounts or even auction off machines at lower prices, forcing Deere and peers to cut production.

The world’s largest farm equipment maker now expects fiscal 2024 net income of about $7 billion, down sharply from its prior expectations of $7.50 billion to $7.75 billion.

Deere’s shares fell 3.2 per cent in early trading. Peer Caterpillar, which last month warned of weaker second-quarter sales, also slid one per cent.

The forecast implied “a very aggressive” downshift in production in the second-half of the year, Jefferies analyst Stephen Volkmann said.

Deere expects sales of large agriculture equipment to decline between 20 per cent and 25 per cent this year, compared its prior estimates for a roughly 20 per cent fall. Industry sales for large agriculture equipment was projected to fall about 15 per cent, at the low end of its previous forecast.

“There were some signs (that guidance might be impacted), but I was still surprised to see them cut guidance for the industry… It was a bit more broad-reaching than I would have expected,” M Science research analyst Alex Prudhomme said.

“Their guidance always implied that they were going to underproduce retail sales to work down inventory. Now that they’ve cut retail sales (targets) across all markets, they’re going to have to work a lot harder to achieve that goal.”

Net income for the second quarter fell 17 per cent to $2.37 billion, or $8.53 per share. Net sales declined 15 per cent to $13.61 billion. However, both beat Wall Street expectations.

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The slower equipment sales are a knock-on effect of corn and soy prices dropping to more than three-year lows as U.S. farm income plummets and equipment makers and dealers are forced to pivot quickly after a period of booming business.

Reuters interviewed ten equipment dealers, mostly in the U.S. Midwest, as well as farmers and analysts, who said low crop prices combined with persistently high interest rates are deterring farmers from purchasing machinery. As farmers make fewer purchases, inventories of equipment are swelling, cutting into profits for dealers and big manufacturers alike.

Manufacturers Deere and CNH Industrial struggled to keep up with the strong demand for tractors in 2022 when farm income hit a record high and pandemic assistance payments gave farmers extra money to upgrade their fleets. Now both expect slower sales to hit their bottom line this year.

Josh Gruett, dealer principal at Waupun Equipment in Waupun, Wisconsin, which sells farm, construction and other equipment, said his inventory has risen 30 per cent to 35 per cent since the end of 2023.

The excess of unsold machinery prompted Gruett to halt new orders from companies including CNH, AGCO, and Polaris in hopes of balancing supply and demand, he said.

In April, inventory levels of high-horsepower tractors (300 and above) in the U.S. surged by almost 107 per cent year-over-year, with combine inventory experiencing a 17.63 per cent increase, according to Sandhills Global, a market research firm specializing in tracking used inventory for industrial manufacturers.

Slashing prices

Chris Tanner, a fourth-generation farmer, said some dealerships in his town of Norton, Kansas, have slashed prices up to 30 per cent with an added incentive of zero percent interest to move machinery off their lots.

“They’re heavily discounting combines and tractors—but after coming through a drought and experiencing poor prices we don’t have the money to spend,” Tanner said.

The pain has also spread to those who sell spare parts.

Guy Robinson, is a parts manager at Dekalb Implement Company, which sells Deere equipment in DeKalb, Illinois

During the peak years of the pandemic, Robinson said, the combination of supply chain troubles and rising demand made getting everything from parts to equipment to farmers “a nightmare.”

And then demand began falling off in late 2022, he said.

About 30 miles south of Robinson’s dealership, Aaron Rogers, retail location manager at AHW, another Deere dealer in Somonauk, Illinois, said zero or low percentage financing is a popular way to try to bring in customers.

“If you can get a good interest rate, that’s what’s driving the market right now,” he said. Offering lower financing rates to sell inventory can result in a loss for dealers, but carrying unsold machinery can prove costlier.

Manufacturers give dealers free financing on equipment for a limited period while they sell it, but once that expires, dealers have to pay interest on their unsold inventory to manufacturers.

With fewer sales forecast, equipment dealers are feeling pressure to auction off equipment “right away” to preserve margins, said Casey Seymour, a sales consultant for dealers.

“Some of the stuff that is being put to auction is because dealers can’t afford to keep the floor plan,” Seymour said. “They can’t have millions of dollars worth of inventory sitting around at a floor plan [with a] 7.5 per cent interest rate.”

Particularly, inventory levels have been a big concern in the Midwest grain belt, said Ryan Dolezal, the manager of TractorHouse, a site for selling new and used farm equipment.

“We do not see the inventory levels issues like we do in Midwest markets,” he said of specialty crop equipment compared to row crop machinery.

Used agriculture machinery inventory, the bulk of machinery sold in the United States, is on a steady increase that is forcing dealers to auction equipment at a lower price point, said Mitch Helman, a sales manager at Sandhills Global.

“For planters there’s a 70 per cent gap between auction and retail and that’s insane. A spread this high has not been observed since May 2015,” he said, referring to a time when grain oversupply was pummeling farmer income.

Deere reports earnings on May 16. In February, the company announced plans to cut production and warned shareholders inflation would make farmers reticent to finance equipment purchases.

Texas-based farmer, Scott Born said given his tighter budget, he’s forgoing buying new or used equipment for the remainder of the year.

“We have to try to limp by without major repairs—it’s tough especially since (equipment and fertilizer) has gone so much higher in just a few years.”

—Additional reporting for Reuters by Heather Schlitz in Chicago

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Global crop prices have moderated while farm incomes have dwindled, setting up for a murky demand backdrop for the agriculture equipment sector as farmers pull back on big purchases such as tractors and combines.

A surge in demand for agriculture equipment early last year had also seen machinery dealers bulk up on inventories, but that trend is now set to reverse as dealers look to tighten their stocks, which translates to lower margins for equipment makers like CNH.

While strong infrastructure spending in the United States was expected to prop up construction equipment demand, softer trends in other global markets like China have hurt machinery makers.

CNH’s larger rival Caterpillar last week forecast glum current-quarter sales, hurt by weak construction equipment sales in all regions but North America.

At CNH, sales of agriculture equipment, which make up close to 75 per cent of overall revenues, fell 14 per cent to $3.37 billion in the first quarter ended March 31, while construction equipment, which typically accounts for around 16 per cent of sales, reported a drop of 11 per cent to $758 million.

CNH now expects full-year adjusted profit between $1.45 and $1.55 per share, compared with the previously estimated range of $1.50 to $1.60 per share.

It also projected an 11 per cent to 15 per cent drop in agriculture segment sales for the year, steeper than the previously expected eight per cent to 12 per cent drop.

Still, higher prices helped CNH top market expectations for quarterly sales and profit, sending its shares up about two per cent in premarket trading. Its adjusted per-share profit of 33 cents beat expectations of 26 cents, according to LSEG data.

—Reporting for Reuters by Deborah Sophia in Bengaluru

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He is not alone.

Farmers across the United States are kicking themselves for putting off corn sales after fields dried up in May and June, fueling expectations for higher prices and smaller harvests. Instead, prices tanked as rains saved the crop. The size and speed of the price collapse stung farmers and left their storage bins stuffed with record amounts of corn.

The steepest market downturn in a decade in 2023 has extended into 2024, hurting the U.S. rural economy. Two years of high prices and tight crop supplies spurred by unfavorable global weather and disruption from the Ukraine war have been quickly reversed.

Record-large harvests in the United States and Brazil, increased competition for U.S. grain exports, and limited domestic demand led to hefty amounts of corn locked away in storage, pushing U.S. corn prices to their lowest level since November 2020 on Wednesday.

Corn is the world’s most traded commodity crop and often sets the tone for other crops. Soybeans, too, plummeted to their lowest prices in more than three years in February.

Ten farmers, economists and market analysts said U.S. growers miscalculated when they held on to corn rather than booking sales. The “store and ignore” strategy of waiting for higher prices has not paid off, leaving some farmers cutting back purchases of pricey equipment and planting less corn. The interviews also demonstrate the tricky decisions farmers face when determining when to sell in the face of potential crop losses.

Corn futures prices Cv1 that approached $6.30 a bushel in June have since tumbled to $4.10, after U.S. farmers ultimately produced record crop yields.

“I wish I sold a lot more,” Henebry said.

U.S. growers held a whopping 7.83 billion bushels of corn in storage bins on their farms as of Dec. 1, the most ever for that date and up 16 per cent from a nine-year low in December 2022, U.S. government data show. Globally, leftover inventories are projected to reach a five-year high by September after accounting for all the corn used to feed livestock, make biofuels and other purposes.

Henebry said he still has about 40 per cent of his 2023 harvest in storage, including 30,000 bushels on his farm in central Illinois. He is paying 3 to 4 cents per bushel a month to keep another 30,000 bushels at a local grain elevator. In a normal year, he would not have any still stored there, he said.

Before prices plunged last summer, Henebry said he sold some corn for $5.50 to $5.70 per bushel and then for as much as $6.21 per bushel delivered to the grain elevator. He held off on further sales because he was counting on poor weather to reduce production and boost prices.

Prices tumbled, though, and Henebry said he sold corn in December for $4.60 per bushel. He wishes he would have unloaded even more at that price.

Prices will come under renewed pressure as farmers do sell the grain they have in storage, analysts said.

“Any sort of little rally, there’s going to be a lot of corn sold,” said Henebry.

‘I’ll just give up’

Fred Huddlestun, a farmer in Yale, Illinois, said he still had his entire 2023 corn harvest in storage last month: about 39,000 bushels at an elevator and 25,000 bushels at home. Prices never reached targets he set to make sales last year, even as he lowered them.

Huddlestun could have earned roughly $360,000 if he had struck deals to sell 64,000 bushels just after Easter; $382,000 around Father’s Day in June; and $307,000 on Halloween, based on Chicago Board of Trade corn futures that represented last autumn’s crop. At current prices, his grain is worth about $263,000. Futures and cash prices often differ by a few cents.

“I kept thinking the market would go up,” Huddlestun said. “I’ll just give up eventually and start selling if nothing happens.”

Huddlestun said he should have sold around $5.50 a bushel. Though all operations are different, breakeven prices for corn growers in central Illinois were about $5.27 a bushel in 2023, including costs for land and other expenses, according to University of Illinois estimates.

Farmers have the space to squirrel away crops after increasing their storage capacity by 24 per cent over the last two decades to 13.6 billion bushels. Storing grain gives farmers more control over when and how they sell, to avoid prices that are typically low at harvest time and to best take advantage of spikes in futures. At grain elevators and other commercial handlers, off-farm storage capacity has increased by 40 per cent to 11.9 billion bushels over the past 20 years, according to U.S. government data.

High interest rates make storage more costly because farmers’ crops are tied up in bins rather than sold to reduce debt, economists said.

In southern Illinois, the second biggest corn-producing state, farmers could actually lose up to $160 an acre growing corn this year, based on corn prices and the cost of production, University of Illinois economists said in a January report. Two years ago, profits reached about $340 an acre.

Such expected losses are rippling through rural America. Net farm income in 2024 is projected to suffer the largest year-to-year dollar decrease in history, the American Farm Bureau Federation, an industry group, said in a report this month.

Deere & Co, the world’s largest farm equipment maker, expects sales of large agricultural equipment to decline 20 per cent this year, due to lower commodity prices and high interest rates.

‘Plenty of corn’

In Wamego, Kansas, Glenn Brunkow, a fifth-generation crop and livestock farmer, plans to delay upgrades to machinery and may try to repair equipment himself, rather than paying a dealership.

“We’re tightening expenses as much as we can,” he said. “We’re trying to limp through putting off some expansion with the livestock, just trying to limp by.”

Early forecasts show U.S. farmers are likely to cut back on corn planting and favor soybeans in 2024. They may struggle to turn a profit with either crop.

Brunkow said he plans to forgo corn planting entirely and grow some sorghum, which requires less fertilizer and has less expensive seeds than corn. Sorghum can be used to make ethanol, feed livestock or be exported to China to make baiju liquor.

Years ago, Brunkow gave up on growing sorghum because it produces lower yields and is difficult to dry at harvest time.

Now, “the economics just are better,” he said. “You’re going to lose less money.”

Analysts do not expect a major bump in demand to draw down corn stockpiles. U.S. exports of agricultural and related products fell 10 per cent by value in 2023 to a three-year low, as plentiful supplies from Brazil and elsewhere challenged U.S. export sales.

Demand from the U.S. meat industry, which feeds corn to livestock, is limited as pig farmers face lackluster pork demand while cattle ranchers slashed their herds due to drought in the Great Plains.

Biofuel demand, which typically accounts for about one-third of U.S. corn production, also worries Rod Weinzierl, executive director of the Illinois Corn Growers Association, as Americans buy more electric vehicles.

“This year every fork in the road has been bearish,” said Matt Wiegand, commodity broker for risk management firm FuturesOne in Nebraska.

—Additional reporting for Reuters by Julie Ingwersen in Chicago.

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Unit sales of four-wheel-drive ag tractors grew in both Canada and the U.S. in November, continuing a strong final quarter for 2023. In Canada, four-wheel-drive unit sales grew 84.8 per cent year-over-year in November and 41.5 percent year-to-date over 2023.

U.S. sales of four-wheel-drive tractors in November were even more dramatic, with a 72.6 per cent increase year-over-year and a 38.2 per cent year-to-date gain.

These figures are unusual for this time of year, wrote Curt Blades, senior vice-president, industry sectors and product leadership with AEM, in a news release.

“November is historically a slow month for tractor and combine sales,” he said.

“We are happy to see the year-to-date sale’s strength in the larger equipment market and remain optimistic for the long-term.”

Overall Canadian tractor sales were more moderate, finishing November up 1.0 percent. Combines were down for the month, falling 12.8 per cent.

On the U.S, side, overall U.S. tractor sales are down 4.7 per cent compared to sales in November 2022. Combine sales finished 11.3 percent below this time last year.

In October, the AEM reported Canadian sales of tractors above 100 horsepower were up 37.4 per cent compared to the same month in 2022. Four-wheel drive tractor sales were up 141 per cent in October, compared to the same month in 2022.

This isn’t because farm machinery has dropped in price. It’s done quite the opposite, Scott Garvey reported in Grainews earlier this month.

As per the Manitoba government’s most recent cost of production guide, Medium (160 to 224 horsepower) MFWD tractor prices have increased 35 per cent; large four-wheel drives (550+ horsepower), up 28 per cent; Class 9 combines, up 27 per cent; high-clearance sprayers, up 31 per cent; and air drills, up 62 per cent, Garvey wrote.

This makes considerations of whether to replace old equipment all the more complex, he added.

High equipment sales could be attributed to production backlogs in recent years, which meant farmers were unable to replace equipment earlier.

Full equipment sales reports can be found in the Market Data section of the AEM website under Ag Tractor and Combine Reports.

— Jeff Melchior reports for Alberta Farmer Express from Edmonton.

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“Farm revenue is a main driver in equipment sales,” said said J.P. Gervais, FCC’s chief economist, in a Nov. 16 news release. “This year, the drought in western Canada has impacted overall production, reducing cash flow for some producers.”

According to FCC’s 2024 outlook for the Canadian farm equipment market, new sales are projected to be softer in 2024 based on three factors: higher interest rates, elevated equipment prices and a decline in commodity prices, wrote Leigh Anderson, senior economist with Farm Credit Canada (FCC), in a Nov. 15 article on FCC’s website.

Robust sales of new farm equipment in 2023 was due in part to a correction of supply roadblocks experienced during the pandemic, wrote FCC senior economist Leigh Anderson.

“Strong sales in 2023 reflect the resolution of supply chain issues and record-high crop receipts in 2022 and the first half of 2023,” he said. A “more cautious environment” driven in part by drought in western Canada and a slowing Canadian economy will likely see a decline in unit sales of 100+ horsepower and lower tractors in 2024.

Implement sales look more positive, wrote Anderson.

“Canadian implement manufacturing dollar sales are expected to finish higher in 2023 due to price inflation on raw materials used in manufacturing,” he said.

“Both 4WD tractors and implement manufacturers (e.g., air drills) faced delivery issues and low inventory levels throughout 2023, which are driving part of the increase in our 2024 projections.”

Used equipment — a go-to for many producers during the pandemic — has already seen a downhill slide in sales. But there are some bright spots.

“Sales of used equipment this year for combines and 4WD tractors have already eased by approximately 20 per cent,” wrote Anderson.

“However, the number of used air drills sold continues to be strong, up 26 per cent this year due to reduced deliveries of new manufactured units and subsequent trades over the previous few years.”

Anderson outlines a few trends to monitor in 2024. These include ongoing inflation and high interest rates plus the age of Canadian farm equipment.

“The strong sales during the 2008 to 2014 period are early indications that the 4WD tractor, 100+ HP tractor and combine fleet is starting to age when looking at the rolling average of five-year sales relative to 10-years on new equipment to estimate the replacement cycle age,” he wrote.

“While replacement cycles can be altered and older equipment can be serviced and overhauled, a slowdown in new equipment sales could be short-lived. Sales could improve in the second half of 2024 and beyond if interest rates decline and producers move to upgrade their aging fleet.”

Although commodities have come down from their 2022 highs, record-high crop receipts that year and the first half of 2023 should place many farmers in a “strong financial position” to absorb rising interest rates and equipment prices.

“While the drought in western Canada means overall reduced production, there are regions where the crop was better than expected and will support the cash flow of producers.”

— Jeff Melchior reports for Alberta Farmer Express from Edmonton.

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