MOLINE, Ill. — Farm tractors, combines and planters are getting enormous in size these days.
But according to The Wall Street Journal, sales of this coveted machinery are on a slight decline.
According to the Journal, Deere & Co. anticipates sales of farm machinery falling by 20 percent in 2015 as the first major slump in the U.S. farm machinery market in a decade draws momentum from lower crop prices and falling incomes for farmers.
Deere, the world’s sales leader in tractors and harvesting combines, reported a 20 percent drop in its fiscal fourth-quarter profit from a year before, with a 32 percent plunge in income from its farm-machinery business alone.
A steep slide in the cyclical farm-machinery market has long been anticipated, after Deere and competitors, CNH Industrial NV and AGCO Corp. benefited from an extended stretch of elevated machinery demand fueled by rising consumption of corn by the ethanol industry and generous U.S. tax breaks for machinery investments.
"Falling crop prices, weakening overseas sales and the curtailment of tax incentives have dampened demand for farm equipment, particularly for large models in the U.S. and Canada where Deere dominates the market," said Tony Huegel, director of investor relations at Deere.
"Deere predicts U.S. cash receipts from farming next year will be $391.5 billion, down 5 percent from its 2014 forecast. Industry-wide unit sales of high-horsepower, two-wheel-drive tractors in the U.S. are down 11 percent in the January through October period. Sales of harvesting combines are down 21.3 percent in the same period."
According to Huegel, Deere has slashed production volumes at assembly plants to avoid a glut of new, unsold equipment at its dealers. The company anticipates a 20 percent decline in its farm machinery sales in 2015, following a 9 percent decline in 2014, will be a sufficient reduction in demand for a sales rebound to begin in 2016.
"Given how we view the market and given where we see things from a historic basis, our view would be that the risk of 2016 sales being down significantly is relatively small," Huegel said.
But some analysts are bracing for a longer slump, especially since most farmers already are using late-model tractors and combines, reducing their need to purchase replacements.
