U.S. retail sales of tractors under 40 hp and 40-100 hp continued to lead the way in September, and while sales of larger tractors rebounded from last month, year-to-date sales were still down, according to the latest data from the Association of Equipment Manufacturers (AEM).
U.S. retail sales for two-wheel-drive (2WD) tractors under 40 hp gained 16.8% in September compared to last year, with year-to-date sales up 11.7%. September sales of 2WD, 40-100 hp tractors were up 3.9% for the year, but year-to-date sales were still down 4.3%.
Sales of 2WD, 100 hp-plus tractors in the U.S. dropped 7.3% for September, compared to a 27.0% drop in August, with September year-to-date sales down 22.7%. September sales of four-wheel-drive (4WD) tractors declined 17.9%, compared to a drop of 48.1% for August, with September year-to-date sales down 32.4%.
U.S. combine sales declined 34.6% for September and recorded a 24.2% drop for September year-to-date sales.
“While our current ag downturn is the result of lower commodity prices putting pressure on farm income, weak exports due to a strong U.S. dollar and overall global economic malaise, we cannot underestimate the impact of inventories at the manufacturer and dealership level,” AEM senior vice president Charlie O’Brien stated.
O’Brien said a recent survey co-run by AEM and the Equipment Dealers Assn. (EDA) provided some insight on the issue from the manufacturer and dealer perspectives.
AEM and EDA teamed up in August to survey their respective members about the levels of new and used agricultural equipment inventory currently on the market. While there were a number of similarities between the two groups surveyed, the discrepancies within the results were most interesting.
AEM’s data results revealed that, since 2014, the agricultural equipment manufacturers surveyed believe that new and used inventory levels are decreasing overall. This trend is consistent with EDA’s agricultural equipment dealer survey results for the second quarter of 2016. In the second quarter of 2016, 79% of manufacturers felt that inventory levels (new and used combined) were stable or falling, while approximately 75% of dealers felt the same.
Although dealers and manufacturers both agree that inventories, used and new, are clogging up the pipelines, it appears that manufacturers are less concerned about their own inventories as they might have started the shedding process earlier or at an accelerated rate.
However, their perceptions of dealer inventories differed.
Currently, 43.1% of manufacturers believe that dealer inventories are “about right,” and 36.2% believe that dealer inventories are too high. In contrast, the majority of equipment dealers believed, despite the apparent down-trend in inventory levels, that both their new and used inventories are too high, with 62% of dealers saying new inventory is too high and 59% saying used inventory is too high.
There are a number of potential reasons for the discrepancies between manufacturer and dealer opinions, the groups noted.
First, it is likely that the dealers’ viewpoint is both more immediate and that they have to take into consideration all lines of equipment rather than that of one specific manufacturer. Conversely, manufacturers’ view is limited as they only consider their own product line. Also, manufacturers must consider the whole production chain as well as retail, which spreads their focus. For dealers that carry lines from multiple original equipment manufacturers (OEMs), the inventory picture can be both nuanced and daunting.
Second, while dealers may be more focused on the day-to-day operations of their business, manufacturers may be taking the long view, evaluating the situation as it will exist weeks, months or even years down the road. As a result, manufacturers may look at current inventory levels as a problem but might consider the issue temporary as their production outlook requires them to constantly consider future adjustments.
“It is not surprising that dealers and manufacturers have differing opinions when it comes to inventory levels.” said Joe Dykes, EDA vice president of industry relations. “In the current environment, dealers could be focusing more on day-to-day inventory issues, sales and competition in their region, where manufacturers may be looking more at national and global market trends, yearly production and sales.”
O’Brien said manufacturers remain concerned about new and used inventories. “Sales figures from AEM show a continued decline in new large tractor and combine sales, and given excess equipment inventory and low crop prices, it is easy to have a negative perspective,” he said.
O’Brien believes a recovery won’t happen overnight, “but the downward trend in inventories is financially helpful for the entire supply chain as inventories are moved through the distribution channel.”
When it comes to solutions, AEM and EDA survey takers seemed to agree about what should be done to fix the inventory issue.
Manufacturers, when asked about their plans and initiatives to address inventory issues, largely focused on internal solutions to minimize cost and make production leaner. Some specific examples given were: reducing head count, restricting overtime and cutting production. While most manufacturers focused on internal ways to reduce inventory, others did offer dealer-focused solutions, such as better or more competitive financing, retail sales promotions and reducing purchasing requirements for dealerships.
Dealers also offered some internally focused solutions to the inventory problem, such as stopping or reducing orders for new inventory. Many noted, however, that manufacturers were not heavily involved in assisting dealers directly in reducing inventory levels. Those dealers that did mention manufacturer-offered inventory solutions cited reduced pricing, rebates and special financing incentives.
Ultimately, it seems that agricultural equipment manufacturers and dealers both understand that they must be prepared for changes in demand and fluctuations in inventory levels, AEM said. Manufacturers appear to be doing everything they can to be informed of problems early and to adjust production accordingly. Similarly, dealers are adapting to what can be accomplished in the existing market and are utilizing the tools at their disposal to keep inventory levels within a stable range supported by their markets.