Farm machinery – farm machinery sales and expenditures
Nominal expenditures for tractors and other farm machinery rose an estimated $510 million in 1990 to $8.2 billion (table 4). However, expenditures in 1991 may not exceed those of 1990. Both net cash and farm income are forecast to decrease in 1991 due to declining cash grain production, lower dairy prices, and increasing production expenses. Net farm income is forecast to fall about 10 percent. Direct government payments will not increase. Agricultural commodity exports will likely show a $3 billion decrease from the $40.2 billion in 1990. Outstanding farm debt will likely climb in 1991, reversing a 7-year downward trend. Diverted acres (idled through commodity programs or enrolled in the Conservation Reserve Program) increased in 1991 from 61.6 to 63.3 million acres, which may further reduce machinery demand. Offsetting these factors is the continued improvement of farm asset values in 1990 and 1991. With both debt and asset values increasing, the debt-asset ratio will probably remain stable at 15; well below the 1985 high of 21. Also, interest rates for farm machinery fell from the 1990 rate of 12.3 percent to a second-quarter 1991 rate of 11.4 percent.
Land Values Increase
Land values continued recovery with a nominal, 2 percent rise in 1990 and are forecast up 1 to 3 percent in 1991. Land value increases are the major component of higher real estate values and can reflect heightened expectations of farm profitability. Higher asset values improve the equity position of farm owners and help in financing machinery purchases. Real (inflation-adjusted) land values, however, were down in 1990 and are forecast to decrease from 0 to 4 percent in 1991, suggesting that a sustained recovery of real land values has not yet occurred.
Interest Rates Decrease
The real farm machinery and equipment loan rate fell to 8.2 percent in 1990. However, this loan rate was up three tenths of a percent by the end of the second quarter of 1991 (table 4). The nominal farm machinery loan rate, the one that probably more directly affects farmers’ decisions to purchase, decreased for the third consecutive year to 11.4 percent in the second quarter of 1991.
Unit Sales Increases in unit sales of new farm machinery in 1990 occurred in all categories (table 5). Combine sales, for example, rose 15 percent. The number of combines sold is forecast to increase another 8 percent by the end of 1991. Increases in sales of tractors and combines reflect recovery from the depressed sales levels of the early and mid 1980’s. Monthly sales of tractors through July 1991 have generally lagged behind those for 1990 (figure 1). Monthly sales of tractors will likely pick up through October and December, in line with seasonal trends of previous years. A 2 percent average increase over 1990 is forecast in the sales of tractors and combines by the end of 1991.
Tractor Sales Sales of tractors in the higher horsepower ranges continued to increase as a proportion of all farm tractor sales. In 1990, four-wheel-drive tractors were 7.7 percent of sales, compared with 7 percent in 1989 and only 3 percent in 1987. Generally, for the last 20 years, the proportion of four-wheel-drive tractor sales increased when total farm machinery sales increased, and decreased when farm income declined and total tractor sales fell. Increased sales of larger tractors is probably due in part to a trend toward larger farms. The U.S. Department of Agriculture (Agricultural Statistics, 1990) reported a 12 percent decrease in the number of farms since 1977. Average farm size increased from 427 to 461 acres. Larger tractors handle larger implements and can cover more ground per pass. The increased sales of larger tractors suggest that farmers find them more cost-effective than smaller tractors. Though sales of farm tractors (greater than 40 horsepower) have climbed, reaching 66,000 in 1990, unit sales are still much less than in the 1970’s when sales reached 156,000. Increases in net farm income, real estate assets, and farm exports; and decreases in farm debt and diverted acres, led to higher sales in the late 1980’s. These were profitable years for U.S. agriculture that afforded farmers the opportunity to step up replacements of machinery and equipment. With fewer, but larger farms and the trend toward larger equipment but fewer units purchased, it is not likely that the 1970’s unit sales record will soon be matched.
Farm Machinery Capital Expenditures and Depreciation
Depreciation exceeded capital expenditures every year during the 1980’s for farm machinery in the United States. Known as capital depletion, this phenomenon was pronounced in the mid 1980’s when real depreciation reached $8.5 billion and real capital expenditures were $4.2 billion. The gap narrowed to $1.3 billion in 1989. When the final figures are available for 1991, real capital expenditures probably will again exceed real depreciation. While continued, long term, capital depletion could have serious implications for both the farming sector and the farm machinery supply sector, capital depletion in the 1980’s is likely the result of farmers’ adjustments to cyclical economic conditions. The profitable farming years of the mid to late 1970’s encouraged farmers to buy tractors and machinery, sometimes more and larger units than needed. When farm income declined in the early 1980’s, farmers bought less machinery, but the farming sector remained highly productive by keeping old machinery in repair and using extra capacity built up during the late 1970’s. Although delaying expenditures on farm machinery can incur higher repair costs, there is usually a range of years when the difference in cost between keeping an old machine and buying a new one is small.
Farm Machinery Foreign Trade
Revised farm machinery trade data for 1990 show exports of farm and garden machinery and equipment still exceeding imports. Exports in 1990 were $3.4 billion, compared to $2.8 for imports, leaving a net positive balance of $629 million, according to the U.S. International Trade Commission. This was down from $746 million in 1989. Manufacturers’ shipments were $9.8 billion in 1990. Accounting for imports and exports, apparent U.S. consumption was $9.2 billion with about 30 percent of farm and garden machinery and equipment supplied by imports. The United States had farm machinery trade with over 130 countries in 1990. The major share of exports went to Canada (33 percent), Mexico (8 percent), Australia (7 percent), and France (6 percent). The U.S. imported farm machinery from Canada (20 percent), Germany (20 percent), the United Kingdom (17 percent), Japan (14 percent) and Italy (6 percent). The U.S. had a farm machinery trade deficit with Germany (-$404 million), the United Kingdom (-$307 million), Japan (-$243 million), and Italy (-$132 million). [Table 4 and 5 Omitted] [Figure Omitted]
COPYRIGHT 1991 U.S. Department of Agriculture
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