Growth in Sales for Tractors Was About 2 Percent in 2011

According to Yengst Associates and as indicated in the table below, growth in sales for tractors was about 2 percent in 2011 and it is expected to gain another 2 percent in 2012, with total tractor sales reaching just under 200,000 units for the year compared to 194,425 units in 2011. Sales are likely to continue to grow through the next five years, although the smaller tractor segment of the market will show more growth than the larger machine segments, as industrial tractor demand has been largely depressed during the past three-to-four years. Total tractor sales are expected to reach 222,000 units by 2016, up 14 percent from the 2011 level. Production of tractors will grow faster during the next few years as the smaller tractors produced by domestic suppliers will be in higher demand whereas today demand is still depressed. Harvesting combine sales declined in 2011 just over 4 percent. Sales should remain relatively flat in 2012, with moderate growth over the next few years. Total combine sales are expected to approach 14,500 units by 2016, up from about 13,000 units this year. Production of combines closely matches domestic demand, with exports outside of North America a small component of the total output. U.S. Agricultural Economy Once again 2011 was a record setting year for U.S. farmers as noted in Table 1. Record cash receipts, income and export levels more than offset production expenses for each of the last five years. Record commodity prices are driving the value of U.S. exports which were $112 billion for the first 10 months of 2011, an anticipated $136 billion for the year, compared to $116 billion for all of 2010. Demand for agricultural exports by developing and emerging countries are the main source of growth in world demand for agriculture as development results in populations’ shift to more diversified diets and away from traditional/staple foods. The U.S. had an Ag surplus in 2011. The USDA estimates that 2012 Ag exports will be $131 billion and Ag imports will be $106.5 billion a 13 percent increase over 2011. The U.S. Federal Government supports farms through commodity-related payments made directly to farmers as well as indemnity payments from Federal crop insurance. The 2008 Farm Bill expires this year and there is speculation as to what is going to succeed it. In the 2012 farm bill, Congress may change the portion of the budget going to farm payments and the design of the programs. Farm policy aside, the shift of U.S. farm structure, the long-term shift in production to larger farms, has changed the distribution of farm support. Government payments listed in Table 1 refer to commoditybased payments and hovered around $12 billon for most of the last five years. Indemnity payments from Federal crop insurance have also increased and reached $5.2 billion in 2009. Some of the benefits of farm payments go to non-operator landlords in the form of higher rents. A significant percentage of U.S. agriculture landlords are not farmers. The U.S.D.A. expects agricultural product prices to remain historically high through 2020 despite the fact that crop prices declined 15 percent in the last half of 2011. The globe has faced new weather related challenges every year for the last several years all of which impact food supply or demand. Increased global growth and higher energy prices will also affect aricultural product prices. Africa and the Middle East will lead in demand for food as Africa is suffering from long-term droughts. The growth rate in world average crop yields has been slowing for nearly two decades in part due to water constraints and the cost of soil remediation required for land with lower productive capacity. This bodes well for U.S. farmers. Overseas purchases of U.S. agricultural products increased 18 percent for the second year in a row to $136 billion in 2011. As noted in Table 2, China was the largest importer of U.S. farm goods for the first time in 2010 but fell back to second position in 2011. Canada, China and Mexico all imported more than $18 billion of agricultural foods from the U.S. in 2011. As we stated above, people’s diet tends to shift to dairy and meat products when they have more money to spend on food. China will require more feed commodities as its farms become larger and more industrial. Not how the “rest of the world” exports have increased since 2009: 19 percent in 2010 and 21 percent in 2011p. Sales of farm equipment are tied to farm cash receipts for crops and livestock which increased more than 15 percent in 2011 to $363 billion. Crop receipts increased 14 percent in 2011 and are forecast to increase less than one percent in 2012. Food grain receipts, including corn for grain and soybeans, are expected to have record high sales. Wheat sales are expected to increase approximately 20 percent and feed crop receipts are projected to increase 23 percent in 2011 This is good news for agricultural equipment manufacturers as farmers often use their income for new equipment purchases. Deere is forecasting an 18 to 20 percent increase in equipment sales in fiscal 2011. U.S. corn yields dropped in 2011 but world production of stocks of grains and oil seeds increased. Net farm income hit a new high of $98.1 billion in 2011, 16 percent more than the previous peak in 2008 of $84.7 billion. It is forecast to reach fall back to $91.7 billion, a six percent decrease over 2011, in 2012. Net cash income peaked at $108.7 billion in 2011 and is forecast to fall 11 percent in 2012. Direct government payments, commodity related payments, in 2011 were $10.6 billion and is forecast to increase to $11 billion in 2012. Production expenses jumped more than 12 percent in 2011 and are forecast to increase four percent in 2012. Expenses are going to increase in all areas but not at the high rate of increases as in 2011. It is important to look at North American tractor and combine unit sales when looking at the agricultural economy. As discussed above, the farm economy has been enjoying record income and receipts for most of the last seven years. Table 3 illustrates North American tractor and combine unit sales for 2005 through 2011. Total tractor unit sales declined in 2008 and 2009 and increased in 2010 and 2011 however 2011 total North American unit sales were more than 22 percent below 2007 sales. Two wheel drive tractor sales in 2011 were more than 12 percent over 2010 sales with 40 to 100 hp tractors growing approximately four percent. Demand for both large tractors, 100+ horsepower, and four wheel drive tractors increased approximately two and three and one half percent respectively. When farmers are flush with cash they often take the opportunity to replace their existing equipment and also expand their fleets. Unit sales trends in Canada in 2011 were more favorable than the U.S’. It is striking that two–wheel-drive tractors sales in Canada dropped 13 percent compared to U.S. tractor sales of the same size category increased 12 percent. Source:italianfarmmachinery