Major farm-equipment manufacturers were not expecting 2020 to be a banner year. But, they did not expect -- how could they -- that a globe-circling viral pandemic would sweep aside even less than the stellar expectations for an industry expected to grow to nearly $230 billion by 2026. Agricultural manufacturers faced a yawning unknown as COVID-19 appeared around the world. Factories closed. Supply chains became uncertain at best.
"When we started the year, we thought this would be a year of recovery," Eric Hansotia, AGCO incoming chairman, president and chief executive officer recalls. AGCO saw a great opportunity in the age of the North American machinery fleet. It was as old as it had been since 2013, and with some expectation for better commodity prices and additional government support, AGCO saw opportunity in its equipment lines, especially Fendt's new lines of combines and tractors, and a new planter.
DAYS OF COVID
Hansotia recalls Friday, March 13, the day the reality of COVID-19 descended on AGCO. "We brought our leadership together and said we need to send everyone home," he recalls. "Wherever possible, we need to work remotely. We started seven-day-per-week leadership meetings." AGCO called those executive meetings Control Towers. "We had every business meet, and those led up to a global [meeting] that I led ... to ingest the new information happening around the world, not only about the disease and how to address safety for our employees, but then the impact on our supply chain, what was happening with our farmers and dealers, and how we needed to keep the support processes going," he explains.
By the following Monday, everyone who could work remotely from AGCO facilities was doing so. AGCO reorganized its U.S. factory production floors to account for social distancing and sanitation guidelines. The manufacturer worked 24-hour days with suppliers to keep service parts flowing to farmers and components coming into the factories. AGCO did lose for a short time the production from its European and South American plants. But, it never had to close a plant in the United States.
NEW AND USED TAKE A HIT
March did look bleak for machinery. The Association of Equipment Manufacturers (AEM) reported that March 2020 farm tractor sales fell 15.6% compared to March 2019. Self-propelled combine sales declined by 11.9%.
Those early COVID weeks hurt the used-equipment sales, as well. The used market "flatlined" for February, March and April, says Kyle McMahon, founder and CEO of Tractor Zoom. "COVID took 20% of the auction inventory off the market" in those months. Tractor Zoom offers a broad look at the used-equipment market through its 450 auction companies' advertisers. The founders of Tractor Zoom also have created an ag equipment valuation product called Iron Comps. For an annual fee, Iron Comps gives farmers, dealers and lenders access to agricultural equipment valuations based on real-time auction data.
Time will tell, but March may have been the worst of it. Manufacturers and auctions began to find their way through the landmines of COVID-19. Factories adapted to new health and social-distancing practices. They found ways to strengthen supply chains. Auction houses expanded their audiences by transitioning to virtual sales.
And, farming machinery continued to be delivered to paying customers. There appears to be an attitude among buyers that "this too shall pass," says Curt Blades, AEM senior vice president of ag service. Farming and ranching rolled on -- even in the face of COVID-19, everyone has to eat.
"I'm pretty proud of the manufacturers," Blades says of their work in the early days of COVID. "They were quick to respond, and they were innovative. It was go time, there were tractors already in the field."
The reversal in the used-equipment market came as farmers began to better understand -- and were encouraged by -- their bottom line. Net farm income looked to be stronger than expected in late spring, so buyers returned to the used market looking to upgrade their older equipment with better technology. "There has been a healthy premium for used equipment since May," says Andy Campbell, marketing director for Tractor Zoom. "COVID has increased the eyeballs on every [virtual] auction. That meant higher prices."
Tractor Zoom's database shows $525 million worth of used machinery was sold during July, August and September. Tractor Zoom also reports 503 combines were sold in August -- 270 of those sold for more than $50,000.
Net farm income is as good a predictor as any of machinery sales, and that's likely driving tractor and combine sales in recent months.
In its last estimate, USDA forecast 2020 net farm income would climb more than 20% this year. Lower cash receipts from commodities are being offset by billions of dollars of cash flowing out into farm country from Washington, D.C.
The infusion is having its expected effect. AEM's September 2020 Tractor and Combine Report (the most recent at press time) revealed that sales of tractors of all sizes and combines beat retail sales recorded for the same month in 2019. It is the first time this year that tractor and combine categories outpaced sales recorded for the same month in 2019.
"Overall tractor sales continue to be driven by small tractors, but we are also starting to see some improvement in larger horsepower and 4WD tractors," Blades says. "With all tractor and combine segments showing month-to-month growth in September, we're cautiously optimistic that this year may end up strong despite all of the headwinds in the market."
Total U.S. farm tractor sales rose 21.6% in September compared to September 2019. Combine sales rose 8.2%. Four-wheel-drive tractor sales units grew for the second month in a row in September, up 21.4%. Sales of 2-wheel-drive tractors, 100 hp and more, rose 7% in September compared to September a year ago. Through this year's first nine months, 100-hp-plus 2-wheel-drive tractors are off only 1.8% for the year compared to the same time in 2019. Four-wheel-drive tractor sales are down 4.7% through September.
COMBINES ARE HOT
Combine sales are doing well, up 8.2% in September and 4.3% for the year. Blades says higher combine sales may be the result of newer models on the market (John Deere, Fendt, New Holland, Case IH, CLAAS) and the desire by farmers to upgrade their harvesting technologies.
It is sales of 40- to 100-hp and sub-40-hp tractors that have been nothing short of phenomenal. Through September this year, the industry has sold more than 154,000 less-than-40-hp tractors and nearly 50,000 40- to 100-hp units.
In much of the world, a 40-hp tractor is a pretty standard farm machine. Not in the U.S. It is a horsepower range generally not viewed as an agricultural tractor. But, even small units generate important sales. "It's a volume that keeps the lights on," Blades explains.
For the year, 40-hp-and-under sales are up 18% over the first nine months of 2019.
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