Low crop prices dent US farm prices, tractor sales

22.08.2014

Farmland prices fell in the US for a ninth successive month, amid worsening agriculture sector sentiment which has sent conditions in the farm machinery market to the worst in at least nine years.

An index compiled by Creighton University of farmland prices major US farming states such as Illinois, Iowa and Kansas came in at 41.4 for this month, below the 48.3 points recorded for July, and the 50.0 mark that indicates a neutral market.

The deterioration, which included particularly weak readings for the western Midwest states of Nebraska and South Dakota, reflected the drop in grain prices which has curtailed farm profitability.

"Agriculture commodity prices have plummeted for crop farmers in our region and are expected to move even lower in the months ahead," said Ernie Goss, the Creighton University economics professor in charge of the survey.

"Much weaker crop prices are taking the air out of agriculture land prices."

'Lowest reading we have recorded'

The drop in crop values is also having a broader impact on the rural US economy, besides the farm equipment market which saw an index reading of 25.5, a record low, below the "very weak" reading of 33.4 for July.

"This is lowest reading that we have recorded for the equipment index since we began the monthly survey in 2006," Professor Goss said.

"The rapid decline in agriculture commodity prices is causing farmers to become more cautious in their equipment purchase."

Industry downturn

The finding follows a series of downbeat comments from farm equipment groups over the sector, with Deere & Co last week lowering forecasts for full-year sales and earnings, following a cut to profits guidance last month by rival Agco, the maker of Massey Ferguson tractors.

 Other groups cautioning over the sector include equipment dealer Titan Machinery, irrigator maker Lindsay Corp and AgJunction, a maker of satellite-based products, which said that "These business cycles are typical of the industry in which we operate and are being felt by both our customers and competitors".

Data from the Association of Equipment Manufacturer industry group show the decline affecting in particular larger machinery, favoured by crop farmers, with US sales of four wheel drive tractors down 11.0% in the first seven months of 2014, with combine volumes dropping 15.2%.

Sales of smaller tractors have grown by 3.3%, supported by the boost lower crop prices have given to livestock producers, major buyers of less powerful machinery.

'Becoming more pessimistic'

Creighton said that its research, drawn from a survey of lenders, had indicated expectations of further weakness to come in the agricultural economy.

"With record crop supplies anticipated by analysts, I expect readings to move even lower in the months ahead," Professor Goss said.

Bank chief executives interviewed by the bank expect land prices to fall by 4.8% over the next 12 months, an increase from a rate of decline of 3.2% expected at the start of the year.

"Clearly, bankers are becoming more pessimistic regarding the trend in farmland prices," he said.


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