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INDIANOLA, Iowa (DTN) -- There's no denying agricultural equipment sales are down and no one is predicting we've seen the bottom yet. "We're dealing with a hangover after a multi-year party," said Matt Cronin, president of C & B Operations, Gettysburg, South Dakota.
Cronin runs a John Deere dealership with 24 locations across six states from Idaho to Minnesota. "But I am cautiously optimistic. I think we're getting back to more normal times," he said.
The Association of Equipment Manufacturers (AEM) reported four-wheel-drive tractor sales have sunk 41% year-to-date compared with last year. Combine sales are down 34% for the year compared with 2014. However, sales of smaller tractors have actually remained steady. In fact, total North American two-wheel drive tractor sales are up 1% over last year (year-to-date).
In Iowa and Nebraska, new ag equipment sales have dropped 30% in the first six months, according to the Iowa-Nebraska Equipment Dealers Association (I-NEDA). Used equipment sales have fallen 20%. One bright spot -- inventory -- has actually improved across the 500 dealer locations the I-NEDA surveys. It's down 12% for new equipment inventory and 10% lower for used equipment. "Dealers are doing a better job managing their inventory," said Andy Goodman, president of the I-NEDA.
GOOD TIME TO BARGAIN
If you are looking for bargains, you might find some relatively inexpensive combines on dealers' lots. "The secondary market for large ag specific equipment such as sprayers and combines is limited," said Goodman. "Combines have put more dealers out of business than any other piece of equipment. Manufacturers fighting for market share push combine sales because they contain a lot of parts. And 'parts' have the highest profit margin. You might be able to sell a large tractor to the construction industry, but you're not going to sell them a combine."
Compounding the problem in the past couple years is 30% to 40% more combines have been sold than the market could absorb, reported Goodman.
"Dealers do need to be concerned about inventory," noted Cronin. "They need to be able to adjust quickly and keep their balance sheet in shape. 'What do I have stacking up on my lots?' They're probably at the wrong price. If I have a piece of equipment that has been on my lot more than 90 days, I may have to adjust the price to get that to move. And if I'm going to take a hit, I'd rather give a bargain to a current customer than a stranger I'll never see again.
"We are still making sales," said Cronin. Equipment does age and technology continues to improve. "Now it becomes more of a judgment," Cronin explained. "As farm income has come down, what does a producer need to update? What gains can he get from a new piece of equipment and what is the payback on those gains?"
Gary Dyshaw, the heavy equipment group head for Wells Fargo, follows the trucking, agriculture and construction industries. He said the advantage for agricultural equipment dealers is farmers still use the equipment even when profit margins are negative. "Unlike in trucking and construction, where they simply park their equipment [during the downturn], agriculture still uses its equipment which continues to need repair and maintenance. And next year, they're looking at planting 230 million acres of corn/soybeans/wheat."