Crop prices, tax incentives push machinery sales higher

Published online: Jul 24, 2013
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Farm machinery sales have soared during the first half of 2013, exceeding last year's strong levels and surpassing manufacturer expectations.

Sales of all new tractors have climbed nearly 12 percent so far this year, topping 100,000 units, according to the Association of Equipment Manufacturers.

Demand for tractors over 100 horsepower has been particularly high, rising more than 27 percent over mid-year 2012, to 17,300 units.

While lower in total numbers, the spike in sales has been even sharper for self-propelled combines -- sales increased nearly 47 percent, to about 4,600 units, according to AEM.

"It's definitely a surprise to the upside," said Adam Fleck, farm machinery analyst for the Morningstar investment research firm.

At the beginning of the year, manufacturers surveyed by the association said they expected sales to flat line after surging in 2012.

Tax deductions for machinery purchases were set to end last year, leading to heavy buying before their expiration.

However, those deductions were raised and extended through 2013.

It was unclear in early 2013 whether the late-year buying spree would inhibit farmer demand for new machinery, but that apparently hasn't been the case.

Farmers are still capitalizing on strong crop prices, as the cash price for corn harvested last year is still at about $7 per bushel, said Eli Lustgarten, an analyst for the Longbow Research firm.

However, the USDA is projecting that prices for this year's corn crop will drop to about $4.40 to $5.20 per bushel due to increased supplies.

"The question is what happens next year," said Lustgarten.

Although the lower price will be offset by higher production, the stock market seems to reflect an expectation that the good times for farm machinery are coming to an end, said Fleck.

Machinery companies have underperformed the overall market, he said.

For example, the share price of Deere & Co. is down 2 percent year to date, while the share price of Agco is up 11 percent. Meanwhile, the Dow Jones Industrial Average is up nearly 18 percent year to date.

Another factor on the horizon is tighter emissions standards for tractors with engines over 175 horsepower, said Fleck. Farmers may be buying now to avoid the new machinery next year.

Manufacturers are expected to raise prices in 2014 to recoup some of their investment in the new engines, said Lustgarten. "It will be a noticeable number."

Source: capitalpress.com