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High commodity prices help producers upgrade machineryBy Kylene Orebaugh Farm equipment lots in the High Plains are looking pretty bare. No, it's not from poor outlooks in the agriculture sector; it's due to high commodity prices. Producers have a little extra jingle in their pockets and are looking to upgrade their farm equipment. "I've seen it from all dealers in the ag sector. All types of equipment are selling," said Jeff Flora, CEO of the SouthWestern Association, which represents equipment dealers in Kansas, Missouri, Oklahoma, Texas and New Mexico. "They have money, and are being driven by the high commodity prices. All segments of the equipment business are really good." New machines are not sticking around on the lots for very long, and Flora said there is a wait for most new equipment. "Because of the demand for new equipment--it's at a record high--manufacturers are not overproducing," Flora said. "(Producers) have to order six, nine or 12 months in advance." Terry Kastens agrees with Flora. Kastens is a farm management professor and Extension specialist with Kansas State University. "My guess is that sales would be even higher, if farmers could actually get new machines in a timely fashion," Kastens said. "Rather, many new items ordered now may not even arrive in time for fall harvest in 2008." Kastens believes sales of other new crop machinery items are limited only by availability. "For example, if you wanted a new large planter from Deere for spring '08, it better have been ordered several months ago," Kastens said. He said machinery sales are likely especially high for the western part of Kansas. "(This is) due to pent up demand from droughty years in the 2000s followed by generally high crop yields --and, of course, high crop prices--in 2007," Kastens said. Prices may rise Flora said he expects prices of new and used equipment to go up, but nothing too crazy. "I think we will continue to see a bump in prices from manufacturers," Flora said. Flora blames this increase on high input prices--steel, tires and other ingredients for building machinery. "The problem arises when dealers have high margins and when supply outweighs demand," Flora said. "We will see high prices from manufacturers who are concerned with high input costs." Flora expects there to be a shortage of equipment for the next three to five years, simply because of the market, inputs and other factors. In October 2007, the Association of Equipment Manufacturers released its annual Outlook Report. According to the AEM website, www.aem.org, the AEM annual report predicted positive sales for the majority of equipment product lines. (See chart titled, AEM Ag Industry Outlook--2008 Retail Sales Predictions.) Increases are predicted in the 4WD tractor categories, combines, chisel plows, field cultivators and planters. "A major factor in the expected increase in high horse power tractor, combine and tillage equipment sales is the continued focus on renewable energy, creating high demand and resulting higher commodity prices, with the resulting increases in net farm income ultimately equating to optimism around equipment sales," noted AEM Vice President of Agricultural Services Charlie O'Brien, in a press release. Manufacturers see record profits For the first nine months of 2007, AGCO reported net sales of $4,657.0 million, an increase of approximately 22.5 percent from the same time frame in 2006. John Deere reported similar gains, reporting $537 million for the third quarter of 2007; ag sales were up 16 percent for the quarter and 14 percent for the first nine months of 2007. Used equipment Used equipment is also feeling the effects of the market. There is actually a shortage of used equipment, Flora said. The trade-ins that do come in are moving rather quickly. Kastens agrees. "In this market, there wouldn't be much selling used before purchasing new--too much risk that you may not get your machines replaced by the time you need them," Kastens said. "My guess is that farmers are doing what they generally do, trade used for new, or used for less-used." So, equipment lots have equipment for shorter periods of time because the used equipment is moving so quickly. "I would be really surprised if good used equipment is going to wholesale auctions," Kastens said. "It's just too easy to sell machinery in today's deep-pocketed farmers market." Flora has seen a bump in prices of equipment, predominately used equipment. Most of the trade-ins, he said, have been going for a premium, but they are not out of control. J.J. Jones, Oklahoma State University Extension area ag economics specialist, Ada, Okla., said on a recent trip to Mexico, he saw a lot of used American equipment lining the lots. "I went to Mexico last year and saw a lot of the old stuff--1960s and '70s. All the stuff I grew up on," Jones said. "Not much of the 1980s and 1990s equipment; the '60s and '70s stuff is what lined their equipment yards. We joked this is where we could go for parts." Other issues Making equipment purchases is also a way to help with year-end income issues, Jones said. "(Producers in my area) have used equipment purchases as a way to defer income for tax purposes," Jones said. Other producers in southeast Oklahoma are purchasing hay equipment, but Jones warns them to err on the side of caution. "I have warned some producers that input prices will go up along with the commodity prices, too. They have to realize they have to make these payments and, if they don't, they could have a cash flow problem," Jones said. "I warn them when they go out and do this, but their tax person will tell them otherwise." Association predicts the future AEM produces an annual survey of agricultural equipment manufacturers and, for the 2008 U.S. farm machinery market, 62 percent of respondents predict U.S. farm cash receipts will be modestly up and 24 percent see a significant increase. Net U.S. farm income is also anticipated to be modestly up by 62 percent of respondents, with 21 percent predicting a significant increase in net farm income. Planted acreage in the U.S. is expected to be moderately up by 63 percent of respondents and significantly up by 15 percent, with 22 percent predicting no change. For U.S. grain exports, 33 percent of respondents see no change while 52 percent expect a modest increase. For U.S. crop prices, 30 percent predict no change for wheat; 44 percent expect a modest increase; and 22 percent foresee significant increases. Some 33 percent anticipate no change for soybeans, while 26 percent expect a modest increase and 26 percent predict a significant increase. For corn, 30 percent expect no change; 33 percent predict a modest increase; and 22 percent forecast significant increases. The price of new equipment in the U.S. will rise moderately, according to 70 percent of respondents, with 27 percent seeing no change. Used equipment prices are expected to increase modestly in the U.S., say 50 percent, while 36 percent responded that prices will stay the same. For the U.S. marketplace, some 46 percent predict no change in the quantity of used equipment available, while 21 percent anticipate modest gains and 29 percent modest declines. About 52 percent expect no change in replacement demand for equipment, with 31 percent predicting a modest increase and 10 percent seeing a significant increase in the U.S.
Kylene Orebaugh can be reached by phone at 620-227-1804 or by e-mail at kscott@hpj.com.
Date: 1/31/08 Advertisement
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