Drought won’t negatively affect ag equipment sales

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In the September issue of the Association of Equipment Manufacturers’ Ag Executive Advisor, the AEM suggests the 2013 outlook for farm equipment sales is positive. The article is reprinted below.

As the lower 48 states experienced the third hottest summer on record and nearly 80 percent of agricultural land has been affected by the first major drought since 1988, a lot of folks may be wondering what affect this will have on equipment sales.

The short answer is; it may not be as significant as many think.

First, a major driver of equipment sales is farm income. When we look at past droughts, the impact on farm income has been minimal, even in years where crop insurance was carried by only a minority of farmers (18 percent in 1988 versus 84 percent today).

Second, income isn’t the only factor. Since much equipment is financed, availability of credit, with farmers’ eligibility to get credit and their ability to pay all are factors.

The USDA states that farm equity is forecast to reach an all-time high while real estate debt declines. Debt repayment capacity utilization (DRCU)—a measure of farm exposure to financial risk—is forecast to be at its lowest since 1970.

This last item, as you can see from the chart in the lower left, was a factor in the farm crisis in the 1980’s. Essentially there was too much debt and too little income to service it. That is not the case today.

Our own survey results confirm that the credit crunch of ‘09 has eased. Less than 10 percent of members report hearing of problems obtaining credit.

While the future is hard to predict, there is little reason to expect equipment sales to be negatively affected by the drought of 2012.


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