Rumblings

Agriculture.com Staff 12/03/2008 @ 11:30am

Is the door slamming shut?

The past two years (2007 and 2008) have been very, very good years for sales of new farm equipment. Farm income has been up and a lot of pent up buyer demand for new equipment has been realized. Not uncommon for buyers to have to wait months and months before taking delivery of their new purchases.

As I've been documenting for the past 12 months, used farm equipment have also been skyrocketing. I'd estimated used values across the board have gone up 15% easily, much more in many cases.

But. . .

What about 2009 on into 2010? What's the outlook for the farm equipment market, both new and used? We've been on this upwards arc of strong new sales and rising used values. Can it continue? The long shadows being cast by the turmoil on Wall Street, in the credit markets and in Washington the last two months are reasons to pause. So, where are we at? Where are we going? Here's a bit of what I've picked up on the last couple weeks.

This last week I began to hear some rumblings about possibly growing numbers of new equipment orders for 2009 being cancelled by customers. With all the constant talk about Wall Street and credit market meltdowns, Washington bailouts and retail sales grinding to a halt, I suppose its not surprising.

I did a quick informal survey of implement dealers around the country, most of whom I've known for 10+ years to ask what they're seeing. Their responses were pretty much along the same line, "Sales still strong, a few cancellations, but no trend to speak of."

One dealer mentioned "having to talk a few buyers off the ledge."

But again, seems like those new equipment orders for 2009 remain very strong, with the possible exception of new orders from Europe, Russia and parts of South America. Not hard to figure out what's going on there, when credit dried up, so too did new equipment orders, thus some foreign cancellations.

In talking to my implement dealer contacts I found another interesting development. The financing arms of corporations, such as Deere, Case/New Holland and the other major equipment manufacturers, are getting caught in the Wall Street credit mess and have seen the financing rates they are able to offer to new equipment buyers skyrocket 3%.

That's 3% higher than the rate buyers can get through their local ag bank on Main Street, Farm Credit Services branches, etc. So good for these other lenders, but definitely not good for the manufacturers who will hate to see such a lucrative revenue stream basically dry up overnight.

These farm equipment manufacturers are well-run, well-managed companies, but are being punished harshly by the economic forces currently at work. See the LIBOR rate. The Feds are trying daily to loosen up the credit markets and get funds flowing again, but until something changes, Deere, Case/New Holland and other ag equipment manufacturers won't be able to be competitive on the financing rates they can offer customers.

One wonders if their financing arms will go the route of Morgan Stanley, Goldman Sachs, GM Financing and try to re-invent themselves as "banks" to become more competitive?

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