Glass Management Group has been producing an annual forecast for tractors and combines for about the past 25 years and even though our 2024 forecast was not published, our models continued to produce a forecast for 2024. Those models indicated a decline in tractor numbers but the actual results so far in 2024 are even below those forecasted amounts.
As we were reviewing the March AEM Flash Reports, it became obvious that there is something afoot that we had not anticipated.
Over the years, our models have been modified to take into account important changes in the market place, such as the increased use of leases as a means of securing equipment by larger farmers because those leases have shortened the term of ownership for those units. The changes that we were experiencing in 2024 demanded another in-depth review.
The U.S. Department of Agriculture conducts a farm census every 5 years and, over time, those censuses have shown a consistent decline in the number of farms in the U.S. For the past 3 or 4 census reports, the average number of acres per farm has increased by about 1-2 acres with each reporting period.
Where Did the Farms Go?
The 2022 census results were not released in full until around June 2023 and that census showed some significant changes.
In the 5-year period between 2017 and 2022, U.S. farms declined by 141,733, or nearly 7%. Normally, this is not concerning because the average size of U.S. farms grew by an acre or two and that indicated that many smaller farms were being absorbed by larger neighboring farms. The total number of acres in farm in the U.S. declined by 2,011,673 — or about 2.3%. Much of the acreage in the farms that disappeared were now a part of larger agricultural operations.
However, taking a closer look at the details in the census shows the smaller farm numbers suffered the largest decline.
- Farms with 1-9 acres declined from 273,325 in 2017 to 234,592 in the 2022 report, or –14.1%.
- Farms with 10-49 acres declined from 583,001 in 2017 to 566,912 in 2022, with only a 2.8% decline.
- Farms that included 50-179 acres declined from 564,763 in 2017 to 530,529 in 2022 or a 6.1% decline.
- Farms with 180-499 acres declined from 315,017 in 2017 to 288,379 in 2022 or an 8.5% decline.
- Farms with 500-999 acres declined from 133,321 in 2017 to 120,456 in 2022 or a 9.7% decline.
- Farms with 1,000-1,999 acres declined from 87,666 to 76,311 in 2022, or a 13% decline.
- Farms with 2,000 acres or more declined from 85,127 in 2017 to 83,308 in 2022, or a 2.1% decline.
The average U.S. farm size rose from 441 acres to 463 acres, which indicates those surviving farms grew substantially, but every farm size category registered a decline in numbers in this report.
Tractor History
Many of my friends at the major tractor manufacturers have long advocated the elimination of the reporting of tractors with less than 40 horsepower, but those tractors have represented more than 50% of annual tractor sales for the past several decades. It wasn’t until about a decade ago that some of the major tractor companies began to focus on the sale of these smaller units as the numbers of larger units remained static, or even began to fall.
These very smallest farmers were by far the most active buyers of tractors and equipment and much of their motivation came from lower interest rates for the financing of their farms and the equipment that they purchased to use on those farms. Many of these farmers would trade tractors in a very similar fashion to their automobiles and pickup trucks and would buy a new one about every 3 years.
The 2017 Census of Agriculture showed a total of 4,038,099 tractors in use on U.S. farms, and that number declined to 3,784,743 on the 2022 census, or a decline of 6.3%.
Average Farms per Dealership AOR
During my more than 5 decades of working within this industry I have witnessed two periods of severe dealership reductions. One was in 1978 and the other was in 2008, both of which occurred after a significant reduction in the number of farms in the U.S.
Today, Farm Equipment has estimated that there are 4,682 dealership locations within the U.S. The customer base for each of those dealerships will vary widely due to the farm economy within their particular Area of Responsibility (AOR). There are dealerships within the Midwest that deal only with production agricultural operations and those farmers demand larger tractors, combines and other grain producing equipment.
Those dealers located in less productive agricultural areas have long depended upon the rural lifestyle farmers as their primary customers, while dealers located in areas of specialty crops have farm customers with unique equipment requirements.
The harsh reality for farm equipment dealers is that cashflow is an absolute requirement, regardless of the crops produced in their AOR. In order for a dealership to remain viable, there must be an adequate number of farm equipment buyers in their area to support their dealership and those buyers are the “farms” as reported in the USDA Census Agricultural in their AOR.
As the number of farms decline, there is additional pressure on farm equipment dealers across the country.
During the 1978 retraction of dealer locations it became evident that many of those locations were not needed as the number of farms declined rapidly. At that time, it was estimated that a successful dealer needed to have a minimum of 350 potential buyers in their AOR. The actual number fell to an average of about 175 in 1978. That small number of customers would not provide the needed cashflow for the current number of dealers to continue in business.
Our data base of tractor retail sales showed 1978 was a mixed bag.
- Less than 40 horsepower tractor sales declined by 12.6% in 1978
- 40-100 horsepower tractor sales declined by nearly 13% that year
- 100-plus horsepower tractor sales grew substantially by 17.8%
- 4WD tractors sales grew at a similar rate of 22%
- Combine sales were down as compared to the prior year by 9.9%
This would tend to indicate that the larger producers were doing well while the smaller farmers were having a difficult time that year. That would also indicate dealers within the grain producing areas of the country were thriving while those in the other parts of the country were seeing a serious decline in sales. Many dealers simply closed their doors that year.
The 2023 USDA/NASS estimate indicated the average farm equipment dealership in the U.S. now serves an average of 404 farmers in its AOR. That certainly is well ahead of the numbers seen in the 1978 example, but the rapid decline in the 5 years between 2017 and 2022 could foreshadow a continued decline in the number of farms since the 2022 census. USDA estimates there were 1,894,950 farms at the close of 2023.
Why Are the Number of Farms Declining?
Even though the total number of farms in the U.S. has been declining for several decades now, the decline has become somewhat magnified since 2020.
From 2015-20 interest rates were at an all-time low and the U.S. Federal Reserve was battling “disinflation.” Even though the total number of farms declined in each of those years, there was an increase in the number of small farms.
It was during this time that many of the rural lifestyle farmers began to purchase farms at a higher annual rate and the cost of equipment during those times remained relatively low, especially the cost of financing that equipment, which was often at a 0% rate.
Employment during those years remained in the positive range and salaries were rising at a slow, but steady rate.
2020 ushered in the Covid pandemic, and there was an almost immediate halt in normal business transactions for much of the year. With the change in leadership in Washington, D.C., there came a new round of inflationary pressures and interest rates began to increase steadily.
Employment practices changed quickly, with the most notable being the ability to work from home rather than having to travel to the office daily. This provided increased opportunity for the rural lifestyle farmers to spend more time working on their farms while their overall cost of living appeared to be dropping.
Within a matter of months, the savings associated with less travel to work was overcome by the ever increasing costs of food, fuel and housing.
Some of the farms purchased during the 5 years prior to 2020 were purchased on a floating interest rate scale and now the cost of maintaining those farms was increasing even more rapidly. Even production farmers whose farms had been in their family for many decades began to see a rapid rise in the cost of producing their annual crops and a reduction in their annual net profits.
Land values had begun to increase across the nation, and this provided many smaller farmers with an opportunity to sell their farms and exit the industry to either retire or to find other employment. This also allowed some of the larger agricultural producers to add to their current land holdings and increase the efficiency of the equipment they currently owned.
What Does This Mean for the Number of Retail Outlets?
The overall number of retail farm equipment locations has been slowly retracting for nearly a decade now and even though there is a significant decline in the number of farms, there is no imminent danger of a mass closing of locations at this time.
The impact of these farm losses will certainly vary from area to area across the country. Those dealers currently engaged in supplying equipment to production farmers, particularly grain farmers, will see very little impact in the near future.
Dealers who are dependent upon supplying rural lifestyle farmers could see a much larger impact in the coming months and years. These are the farmers who could most likely sell their farms and move to another location since their income is produced in an off-the-farm industry or, as the USDA’s data suggested, could be retirees already.
This simply means the owners of these retail farm equipment dealerships should be assessing the current farm locations within that particular AOR in order to anticipate any pending changes that might be taking place there. These changes could be manifested in many ways, from downsizing of the operation to sourcing equipment that is salable in their AOR to other related industries.
Declining farm numbers simply translates into a declining number of customers for farm equipment dealers across the country, and now is the time for diligent and careful analysis of their individual markets.
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