By Charlie Glass, Glass Management Group
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 dates from 1970. We also house information from USDA Agricultural Censuses from 1978 to 2017. All of this data is essential in making a reasonable forecast for the industry.
Our models consists 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 seen.
Under 40 Horsepower Tractors
These smallest of farm tractors have historically accounted for more than 50% of the total unit sales of tractors sold in the U.S. We expect this category of equipment will represent 67% of the total number of tractors sold in 2020. The principal purchasers of these units are lifestyle farmers who aren’t necessarily farmers but derive the majority of their income from sources other than farming. Certainly, there are other buyers of this class of tractors such as landscape contractors, general contractors, governmental agencies and specialty farmers but the lifestyle farmers purchase the majority of this type of equipment.
The U.S. general economy has continued to be strong in recent quarters but there is some evidence that the GDP growth rate has slowed recently. Record low unemployment, rising payrolls and IRA/401K retirement accounts growing at rapid rates will only add to the consumer confidence next year.
Some 70% of the U.S. economy is derived from consumer spending and these units certainly qualify as consumer products. Because of this recent slowing of the economy we have concluded that the growth in this category will be slightly less than 2019 but will surpass 2019’s level of sales.
Forecast — Under 40 HP Tractors
Total Retail 171,888
Total Inventory 93,327
40-100 HP Tractors
This category of farm tractor represents a wide range of horsepower and applications. Our research has shown that the lower horsepower range (40 – 60 HP) has been purchased predominantly by lifestyle farmers and we anticipate this to be the case in 2020. This lower power range of tractors will represent a large percentage of the total number of tractors sold within this category next year.
Production farmers also make up a large purchasing group in this category and their purchases are affected by the net farm income for these farmers. The availability of financial credit to these producers has become somewhat less available in recent months and that could retard the sale of this type of equipment. The need for replacement of a portion of an aging fleet will produce a steady base of sales in the 60–100 HP segment of this class.
The forecasting research for this category indicated a slight improvement in total sales over the 2019 level but the majority of that increase will occur in the lower third of the horsepower range.
Forecast — 40-100 HP Tractors
Total Retail 61,232
Total Inventory 49,044
100-Plus HP 2WD Farm Tractors
The producers who purchase this category of tractors are typically the larger farmers in terms of acres and total income. They also are ones who take advantage of available crop insurance programs, hedging activities and who will benefit from USDA’s Market Facilitation Programs that were designed to compensate producers negatively affected by the tariff wars with China.
These producers will have the available financial resources to purchase new tractors, but their purchases will be tempered by the future prospects for their crops. Any signed agreement with China and the approval in Congress of the U.S.-Mexico-Canada trade agreement (USMCA) will be a positive move for this category but those new purchases most likely will not appear until 2021.
Our forecasting models are suggesting that this category will have a slight improvement over the 2019 levels in the coming year.
Forecast — 100-Plus HP Tractors
Total Retail 18,266
Total Inventory 8,870
4 Wheel Drive (4WD) Tractors
These very largest tractors showed a measure of strength in 2019 and we anticipate this slow growth to continue into 2020. Purchasers of these units are the largest farmers and who generate a net income that is more than their living expenses and general production expenses, and have available capital to invest in new equipment. These farmers have also shown to be rather conservative in their purchasing decisions and have added or replaced only those units absolutely necessary to maintain their crop production.
The approval by Congress of the USMCA and/or a partial agreement with China will have a positive effect upon this category but our models suggest that any real change will be seen in 2021.
Forecast — 4WD High HP Tractors
Total Retail 2,963
Total Inventory 1,068
Combines
Combines sales are totally dependent upon a strong commodity market and the resulting growth in net farm income. Many retail sales in 2018 and 2019 have been lease contracts and that has helped to maintain the level of sales on a rather consistent basis. It is our view that these lease agreements are necessary to generate sales in the current environment.
The USMCA approval by the House of Representatives and any agreement reached with China would certainly be a positive step for combine sales. Should these things occur in 2020 most combine sales will be made late in the year and the real growth will be in 2021.
Forecast — Combines
Total Retail 4,922
Total Inventory 1,039
As we have done in the past, these total numbers will be our forecast for 2020 and we will update the monthly forecasts after the release by AEM of the December Flash Reports in early January 2020.
