Nearly half the dealers responding to UBS Investment Research's latest survey expect 2010 farm equipment sales to fall below the levels seen in 2009.

And while they believe commodity prices pose the biggest hurdle to increased sales this year, they also see several positive factors developing, including tight inventories and firm equipment pricing.

"Other risks to higher farm equipment demand in 2010 include the investment tax credit and the impending interim Tier IV engine emissions changeover," says Henry Kirn, machinery analyst for UBS. "That said, given lower cash net income in 2009 — USDA expects a 27% year-over-year decline — and robust demand over the last few years, we expect flattish U.S. farm equipment demand in 2010."

This was the 26th survey of U.S. farm equipment dealers conducted by UBS. More than 400 dealers participated in the January poll.

Declining Sales. The chief finding of the survey is that 43% of dealers expect ag machinery sales to decline throughout 2010, while 27% believe business levels will increase. The remaining 30% project sales to be flat compared to 2009.

For the first quarter of the year, 39% of equipment retailers anticipate that sales will be lower compared to year-ago levels, while 17% expect sales to increase during the period. The rest — 43% — are forecasting sales to be flat or at about the same levels as the first quarter of '09.

Stable Equipment Pricing. "While roughly two-thirds of dealers indicated that pricing is stable, 23% of farm dealers indicated that new equipment prices were firming while only 11% indicated that pricing is weakening.

On average, dealers expected manufacturer price increases in the 1-2% range," says Henry Kirn, machinery analyst for UBS.

Some 19% of the respondents reported that used equipment prices are firming, while another 19% reported that used prices were weakening. The remaining 62% reported stable used equipment prices.

Tight Inventories. Another significant finding of the UBS study showed that 57% of dealers saw new equipment inventories as "Much lower than normal" or "Lower than normal," while 16% saw inventories as "Higher than normal" or "Much higher than normal."

All dealers, regardless of brand, reported lower than normal inventory levels. Used equipment inventories were also slightly below normal levels, according to Kirn, as 34% of the survey respondents see used equipment inventories "Much lower than normal" or "Lower than normal." About 26% saw inventories as "Higher than normal" or "Much higher than normal."

Slightly Slowing Sales. Generally, ag equipment dealers expect agricultural business conditions to deteriorate slightly over the next 6 months.

Of 412 responses to the question, 26% of dealers believe that farmers expected agricultural business conditions to "Improve" over the next 6 months, while 28% of dealers that believe farmers expect agricultural business conditions to "Deteriorate."

The remaining 46% believe that conditions will "Not change." Kirn also notes that New Holland dealers were much more optimistic than were Case, Deere or AGCO dealers.