Farmers optimistic about ag market prospects

Farmers in the U.S. have been struggling the past few years with low commodity prices and this year may be no different, but they and their equipment suppliers are banking on a slight upturn.

The American Farm Bureau Federation expects the same relatively flat farm economy this year that the industry has experienced over the last few years, with flat prices throughout 2018.

"It is a situation where we're looking at more of the same. Prices have been in this relatively flat range for quite a while," John Newton, AFBF market intelligence director, said in an AFBF report. "Farmers are burning down equity. They've been doing that for a number of years."

In 2018, early reports are speculating the gap between production and consumption to narrow slightly.

This year the farmers and the OE manufacturers that supply them are positive and hopeful, according to David Graden, operational marketing manager, agriculture, for Michelin North America Inc.

"OE manufacturers speculate positive growth throughout 2018, and we expect ag tire sales to OE manufacturers would mirror this," he said.

Net farm income was expected to be stable in 2017, compared with 2016, after three consecutive years of farm sector decline, according to the U.S. Department of Agriculture.

"Overall, the 2017 farm industry faired OK. Early in 2017, some expected the average farm income to decline by about 8 percent. However, the end of 2017 showed an uptick of about 3 percent in North America," Graden said.

He added that last year, many areas were suffering from drought while others saw an abundance of rain, and grain production outgrew consumption, which negatively impacted grain prices and farm income.

"Farmers still invested in their businesses in 2017. However, they were more frugal," he said.

The Association of Equipment Manufacturers reported increased sales of new tractors and combines in 2017.

"When we look at 2017, U.S. retail sales, especially from mid-year on, the bright spot continued to be the small-tractor sales under 40 horsepower with consistently positive numbers, while tractors 40- to 100-hp have essentially been flat," Curt Blades, AEM senior vice president for ag services, said in a report.

Sales of 100-plus hp tractors fell about 8 percent in 2017 from 2016, according to the AEM.

"For the larger ag tractor sales (100-plus hp two-wheel-drive), we saw some real softening at the beginning of the year but some sizable reversals to end at a negative 8 percent, and 4WD tractors and combines ended on a positive note with modest gains," Blades said.

Four-wheel-drive tractor sales in 2017 increased nearly 5 percent over 2016 sales.

"So, while the downturn of 2016 carried over into 2017, it began to reverse as the year progressed. With tax reform passed, we are cautiously optimistic for continued overall improvement in 2018," he said.

Deere & Co. said its equipment sales in the U.S. and Canada increased 5 percent for its fiscal year ended Oct. 30.

Industry sales for agricultural equipment in the U.S. and Canada are forecast to increase between 5 and 10 percent for 2018, supported by higher demand for large equipment, the company said.

CNH Industrial N.V., the manufacturer of Case IH and New Holland tractors and equipment, reported net sales in the NAFTA region were flat last year, as stable row crop market conditions and improved tractor mix were offset by reduced market demand for hay and forage products.

The company noted there was "continued inventory destocking efforts in high horsepower tractors in the NAFTA row crop market segment and weakened demand in hay and forage products."

AGCO Corp. reported North American net sales decreased 1 percent in the first nine months of 2017 compared with the same period of 2016, impacted by its dealer inventory reduction efforts and softer industry demand.

"Sales declines were most significant in hay tools, GSI equipment and sprayers. These declines were mostly offset by increased sales of mid-range and high horsepower tractors," said the company, which expected improved sales volume for the full year.

"Over the past few months, we have seen more and more farmers requesting wide singles and VF tires (in the Midwest, particularly) for their 4X4 tractors, combines and grain carts," Graden said. "That means we anticipate the VF520/85R42, 710/70R42, 800/70R38 and even the 900/60R42 sizes to be in demand mid- to late summer.

"As for row crop, we see an increase in the 340/85R46, 480/95R50 and your standard MFWA size tires, but in the newer technologies and innovative tread designs—the new Michelin Agribib2."

He said Michelin expects to increase its production of farm tires this year.

"Tires are continuing to get taller and wider," Graden said. "Additionally, Michelin is investing a lot of time and resources into new technologies to make the current standard size tires carry heavier loads at higher speeds and in tires that have the ability to change footprint with the push of a CTIS button."

The ever-changing tire designs will create challenges for tire dealerships.

"One of the biggest challenges for tire dealers this year will be knowing the full range of ag tire products along with their benefits and features, and why one tire may be more appropriate in a specific application," Graden said.

"Tire technology is changing rapidly. Farmers may have seen something at a farm show or online and are calling their tire dealers for this knowledge. If the tire dealer fails to provide an acceptable answer or level of knowledge, farmers will shop around."