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The impact of COVID-19 on farm machinery sales

Published on 11 June 2020

Back in February, the USDA was projecting a $3.1 billion increase in net farm income this year. Then COVID-19 emerged. Prices for hogs, cattle and dairy collapsed. Ethanol returns dipped into the red. Futures for staple commodities like corn and soybeans plummeted.

As of this publishing, the USDA had yet to issue its reforecast. However, a private forecast from the Food & Agriculture Policy Research Institute estimates farm income to drop roughly 11% from the USDA's original projection.

That kind of sudden, unexpected reversal of fortune typically leads to one thing: demand shock. That is one reason why many economists are now talking more about a U-shaped recovery curve than a V-shaped curve. Still, it is nothing more than a guess since so many unknowns persist.

"Trying to figure out the true extent of COVID-19's impact is like staring into a deep, deep mist," said Association of Equipment Manufacturers (AEM) Director of Market Intelligence Benjamin Duyck. 

In the meantime, Duyck offers analysis of the "U.S. ag equipment forecast" from Oxford Economics, a leader in global forecasting and quantitative analysis. Oxford generates forecasts for a variety of potential scenarios. Its baseline forecast calls for a 15% decrease in gross U.S. ag equipment output in 2020, followed by a strong rebound in 2021. Oxford's most negative outlook pegs this year's decline at 26%. "But even those more negative outlooks have us rebounding 6 to 10 percent in the following years," Duyck pointed out.

AEM's monthly "U.S. ag tractor and combine report" shows that farm tractor unit sales were down just under 1% for January-February as compared to the previous year. In March, sales plunged 15.6%. Self-propel combines had a rougher first quarter all around. Sales were down 22.6% in January-February and another 11.9% in March. "Although the March numbers were likely impacted by COVID-19, it is still too soon to tell the ongoing impact of this crisis on ag equipment sales," Duyck said.

April's data showed signs of promise. Farm tractor unit sales were up 12.3% from April of last year. Self-propel combines climbed 4.1%.

Also in April, AEM conducted a survey to gauge the attitudes of equipment manufacturer CEOs. Nearly everyone (95%) felt that COVID-19 was having a "very negative" impact on the overall economy. However, far fewer (57%) felt like the equipment industry was being hit in a very negative way. Furthermore, less than half (45%) felt like their individual company was being hit unusually hard, and just 31% felt like their supply chain was being very negatively impacted. Generally speaking, the majority of CEOs felt like COVID-19 was having a "moderately negative" impact on the ag equipment business environment.

As difficult as it is to look into the deep mist of the COVID-19 economic crisis, the CEO survey helps bring a few things into focus. Roughly 62% of CEOs anticipate improvements through the remainder of the year, while just 11% see things as getting worse. Roughly 27% expect things to remain the same.  end mark

Excerpts from an Association of Equipment Manufacturers news release, June 10, 2020