Source: Farm Equipment
It’s difficult finding anything positive coming out of the COVID-19 pandemic, but it appears the stay-at-home/work-from-home directives are pumping up the sales of small farm machinery.
Via our monthly Dealer Sentiments & Business Conditions Update survey, we’ve been hearing from dealers that the sale of small tractors and rural lifestyle-type equipment has been picking up nicely in the last several months.
“Our small ag sales were better than expected in April.” (Delta States/Southeast/Southern Plains) … “Despite the pandemic situation, business has been very brisk in the lawn/garden and rural equipment customer areas.” (Lake States/Northern Plains) … “140 horsepower and below sales are still very strong … Compact tractors saw a huge jump this month.” (Corn Belt)
We’ve also told you about the improving sentiment among farmers and equipment dealers [Dealers & Growers Report Improved Sentiment] but the most recent sales numbers from AEM were encouraging, but particularly positive for smaller ag equipment.
In June, sales of compact tractors (<40 HP) were up more than 37%. Through the first 6 months of 2020, total sales of small tractors were slightly over 102,000 units. This is up more than 13% for the year. The average 6 month (Jan. – June) sales of this equipment between 2016-19 was 81,000 units. Canadian dealers also saw an uptick in sales of under 40 horsepower tractors in June. According to AEM, sales of tractors in this category grew by 42% year-over-year to 1,803 units. Year-to-date, Canadian sales of compact units rose to nearly 8,100 units, up 6.7%. Average sales for the first 6 months of the year between 2016-19 were 6,800 units.
On July 13, Mircea (Mig) Dobre, analyst with RW Baird upgraded Deere & Co.’s stock to “outperform” based on the company’s rising sales of Ag & Turf products. “While large ag equipment normally captures all investor focus, in FY19 36% of A&T sales were generated by small ag product (aimed at consumers, hobby farmers and livestock farmers) and another 15% from turf and consumer equipment. A consumer recession (sharp rise in unemployment and collapsing confidence) thus posed a meaningful risk to a sizable portion of Deere’s business,” Dobre said in a note.
“The past 3 months have shown that the COVID-19 recession is leading to a very different set of consumer behaviors compared to prior recessions (2008-09 or 2001-02). Multiple datapoints are showing consumer product demand resilience — as homeowners spend more time at home due to the coronavirus (including canceling summer vacations) they are directing more spending toward outdoor and home-related discretionary durable goods, such as Deere’s Gator line, turf products, hobbyist under 40 horsepower tractors, etc.”
The Baird analyst also points out that dealer inventories are also shrinking. “These lean inventory levels driven by production cuts create a favorable setup for these categories heading into FY21.”
Dobre is also seeing some positive signs for large ag equipment going into the second half of the year. “Large Ag equipment demand has remained resilient compared to other machinery categories, running in-line-to-slightly-better than expectations, as burgeoning replacement demand partially offsets [the] COVID/ethanol shock.”
AEM reports that U.S. and Canada large tractor and combine retail sales increased 4.6% year-over-year in June following a 20.1% decrease in May. U.S. sales increased 6.3% following a 14.5% decrease in May; Canada sales declined for the 17th straight month, but at a much more moderate rate (3.5% lower). Dobre also views declining dealer inventories as a positive moving forward. “OEM production cuts are having a clear impact as dealer inventories continue to decline across all categories.”
The July World Agricultural Supply and Demand report released on July 10 was more encouraging for commodity prices then it has been for some time. According to USDA, ending stock estimates were cut dramatically for corn (–20.3% vs. June) and raised for wheat (+1.8%) and soybeans (+7.6%). Yield estimates were maintained for corn and soybeans, but modestly lowered for wheat (–0.2%). Farm price estimates were raised for corn (+4.7%) and soybeans (+3.7%). This is probably all the good news you can take in one sitting. Check back in a few weeks and we’ll see how the ag equipment business is holding up during these challenging times. We’ll continue looking for positive trends wherever we can find them.