Independent investment research firm, Morningstar Inc., has issued its most recent outlook for ag machinery. According to Eric Anfinson, associate equity analyst for Morningstar, demand for agricultural equipment and machinery has softened due to weakened crop prices. North American buyers lack interest at current prices, and many have been able to delay replacing exhausted equipment fleets. Farm income has dropped in many European nations, and uncertainty arising from Brexit has lessened the urgency to make large purchase orders.

In his report, which was issued on Oct. 5, Anfinson, said: “Weakened crop prices have made the environment increasingly more difficult for agricultural equipment manufacturers. A drop in farmers' income has lessened willingness and the allure of new equipment. The United States Department of Agriculture is forecasting net farm income to be down double digits from last year. This would mark a third consecutive year of decline for the key indicator.

“European agricultural demand is pointing toward modest sales declines, and political and currency volatility exacerbate problems for farmers in South America. To combat depressed global demand, agricultural equipment manufacturers have showcased lower price points and machinery with enhanced capabilities. For example, telematics and software components allow a farmer to increase productivity during these trying times.

“With uncertainty in the near future and crop prices depending on a plethora of variables, management teams and buyers are hesitant to lay out a recovery timeline.

“However, we believe long-term factors provide upside to the space. Calorie consumption is growing, and emerging countries have shown increasing willingness to utilize agricultural mechanization. Various regions across the globe maintain staunch support for government crop insurance and subsidy programs, and producers of seeds and pesticides are continuously working to increase crop productivity. Thus, although short-term headwinds are clear and causing unrest, latent pockets of optimism lead us to conclude undervalued opportunities are present for stakeholders.”

By Eric Anfinson 

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia.