U.S. Farm Equipment Forecast Through 2012

by: Yengsts Associates     URL: www.yengstsassociates.com

4/29/2008

According to Yengst Associates and as indicated below in Table 1, sales for agricultural tractors increased just over one percent in 2007 over 2006. This increase can be attributed to the record breaking amount of net farm income, net cash income and farm cash receipts despite the decline in government payments in 2007. Higher commodity prices are driving the farm economy.

Sales of large tractors and harvesting combines were very strong in 2007 versus 2006, although sales of compact utility tractors declined. OEMs also exported larger tractors overseas in great quantities because of the lower value of the dollar. Farmers are currently benefiting by the movement into ethanol as an alternative fuel and the resulting shortage of corn and other feed crops. Prices for soybeans, corn and wheat are at record highs, which are helping the farmers greatly. This scenario should continue for the next year or two. However, it should be noted, that small tractor sales will continue to be slower in 2008 and 2009, offsetting the gains in large tractor sales. The sales mix for tractors has shifted, which is not shown in the above table. There aren't any business declines forcasted for any of the major tractor suppliers and tractor sales are expected to increase by 5% during the period 2007-2012.

Sales of harvesting combines will overshadow those of tractors as farmers have a record amount of money available to them and have not spend widely on equipment for several years. While combine demand is projected to increase through 2009 when it will peak at a level near 10,500 units, the highest level of sales over the past decade. By 2012, sales will be in the range of 9,500 units, still 2.5% ahead of 2007 sales, which were good.

U.S. AGRICULTURAL ECONOMY
Net farm income and net cash income forecasted for 2008 jumped to record high levels because of the increase of major feed crop prices which are expected to continue well into 2008. The values of crop production are forecast at record levels. Despite the drop in government payments net cash income increased approximately 29 percent over 2006 and reached a peak. Government payments are forecast to decrease to $12.1 billion in 2007.

Farm cash receipts for crops and livestock are expected to be higher in 2008 by almost 10 percent reaching $313.2 billion. Ethanol continues to be an important force in rising corn prices and cash receipts for corn. Wheat and soybean prices are also important drivers in rising cash receipts. The weaker dollar also benefits U.S. farmers resulting in greater effective demand for U.S. exports. Increased production expenses and continued cuts in government payments are expected to be more than offset by higher commodity prices and increased demand.

Net farm income is forecast to be $92.3 billion in 2008, up 4% from 2007 and 51% above the ten year average of $61.1 billion. Net farm income reached a record high of $88.7 billion in 2007 despite the drop in government payments for that year.

Net cash income is forecast to grow to $96.6 billion in 2008 from $87.9 billion in 2007 a 10% increase. It is expected to increase more than net farm income because of the large carryover of crops harvested in 2007 which will be sold in 2008. The lynch pin of 2008 is the value of crop production, $175.5 billion, which is forecast to exceed 2007 record high of $149.6 billion, a 17% increase. Direct government payments in 2008 are projected to increase to $13.4 billion, an 11.7% increase over the 2007 payment of $12.0 billion.