Ongoing sharp inventory correction is masking otherwise solid longer-term industry fundamentals, according to Avondale Partners analyst Igor Maryasis in a Nov. 4, 2015 note announcing the firm’s coverage of Titan Machinery.

“While high horsepower equipment sales are down 45% from the industry peak in 2013, and approaching levels not seen since the early 2000’s, farm cash receipts, the main driver of equipment sales, are nearly double from where they were then,” says Maryasis.

He goes on to say that consumption of commodities is keeping up with global supply, and ending stocks are tight. “We believe we are in the overshooting stage and expect supply/demand to balance in 2016.”

Bottom Line: Current equipment sales/production levels relative to farm cash receipts are unsustainable and we expect to see inflection in FY16, according to Maryasis.