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Equipment sales for 2015 not expected to top 2014

 

By MICHELE F. MIHALJEVICH
Indiana Correspondent

MILWAUKEE, Wis. — Farm equipment sales for 2015 aren’t expected to improve over last year – and may slip further, according to officials with organizations representing manufacturers and dealers.
Last year’s numbers were hampered by low commodity prices, excess used equipment on dealer lots and uncertainty over tax extenders such as Section 179 expensing and bonus depreciation, those representatives said. The lower sales figures follow several years of good to strong numbers.
“Based on all the indicators, we’re not expecting there will be a big swing upward in commodity prices,” said Charlie O’Brien, senior vice president with the Assoc. of Equipment Manufacturers (AEM). “If that’s true, sales will probably continue to be flat or even be down a little (this) year. It’s projected that 2015 won’t be a rebound year.”
Self-propelled combine sales were down 23.7 percent through November 2014 over the same period in 2013, according to AEM’s mid-December sales report. Four-wheel-drive tractors fell 22.8 percent, while two-wheel-drive tractors with 100 hp or more dropped 12.4 percent.
Two-wheel drive tractors under 40 hp and 40-100 hp were up 8.9 percent and 6.8 percent, respectively.
While there was a decline in sales at the start of 2014, about halfway through the year the numbers began to tumble, O’Brien said, noting he was surprised by the suddenness of the drop. Through July, self-propelled combine sales had dropped 15.2 percent over the same period in 2013. Sales of four-wheel-drive tractors were down 11 percent, while two-wheel-drive tractors with 100 hp or more fell 8.7 percent.
Uncertainty a hindrance

“It’s been an alignment of all the moons,” he explained. “We’ve had the decline in commodity prices, and farm income is down 13.8 percent (in 2014) from last year. When income is down, a farmer might think, ‘Maybe I should be a little cautious in my buying behavior.’”
It’s also been difficult for farmers to plan because of uncertainty about tax extenders, O’Brien said. Section 179 of the tax code refers to the deduction of business expenses for investments such as property and equipment. In 2012-13, small businesses were able to deduct up to $500,000, but last year the amount was $25,000.  Bonus depreciation allows businesses to deduct 50 percent of the cost of new capital investments in the first year.
“It’s very difficult if you don’t know what the rules of engagement are,” O’Brien said. “It does make planning difficult.”
Dealers were also concerned about Section 179 and the other extenders, said Kim Rominger, executive vice president and CEO of the Ohio-Michigan Equipment Dealers Assoc. and the Mid-America Equipment Retailers Assoc.
“They will be very conservative, watching and ordering new equipment very carefully,” he stated. “They’re being a little cautious. Famers don’t know (at this point) what kind of tax package they’re going to have. The difference between what farmers are getting now (in profits) versus a couple of years ago is pretty broad.”
Dealers are also reluctant to take used equipment in trade because of the glut of it already sitting on their lots, Rominger said.
The foreign market for used equipment is tight and the loss of middle-sized farm operations has also hurt, he noted.
“Farms are getting either bigger or smaller, and we’re losing that middle-sized farmer,” he said. “Dealers are taking some of the (used) equipment to auction and are shocked in a negative way at the prices they get.
“You can’t blame the farmers. If they can get a really good deal, they can’t pass it up. Farmers have taken in a lot less money this year, even though yields are substantial.”
Companies such as John Deere have released their sales figures for their 2014 fiscal year. Sales in Deere’s agriculture and turf division fell 9 percent for the year over 2013 due to lower shipment volumes, a sale of the company’s landscape and water operations and the unfavorable effects of currency translation, Deere said in its November 2014 earnings report.
Manufacturers of smaller pieces such as post-hole diggers, sprayers and tillage equipment may actually appreciate a break in sales, said Vernon Schmidt, executive vice president of the Farm Equipment Manufacturers Assoc.
“In general, for the last three to four years, for most of our members, they’ve had one year of breaking company records after another year of breaking company records,” Schmidt said. “It’s cyclical. Agriculture is going to go up and agriculture is going to go down.
“Some manufacturers may be saying, ‘We need a break, time to reorganize our factories and give our people some time off,’” he added. Sales of small equipment may end up being off 10-15 percent over the next several months, but “off of a record year that broke a record year.”
All news isn’t bad

Farm income may be down, but it’s still $25 billion above the five-year average, meaning it’s not all gloom and doom for the agricultural economy, O’Brien pointed out: “There’s still money being made out there, balance sheets are still in good shape and people have paid down debt.”
Jeff Jensen, a senior economist with Keybridge LLC, sees the potential for some improvement in sales in 2015. Keybridge is a Washington, D.C.-based economic and public policy consulting firm.
Momentum monitors compiled by Keybridge for the Equipment Leasing & Finance Foundation show slow and steady growth over the next few months, Jensen noted. Improved weather patterns and low interest rates are seen as two key factors in the potential for growth, he said.
“Things are going to turn,” he explained. “We might see a smaller rate of decline and maybe start to see an increase (in sales). The monitors tell a positive story for the next three to six months, but don’t tell the story for the whole year. Things will improve but it doesn’t mean things will be great.
“A lot of equipment you would have replaced has already been replaced. I don’t think you’re going to see a return to the boom years.”
1/7/2015