October 13, 2014
New Paint: A Look at Combine and Tractor Ownership Trends
By David Widmar
It’s no secret that the recent agricultural boom has fueled producer’s interest and financial ability to upgrade equipment lines. A simple drive across the countryside makes it easy to observe that producers have been plowing some of their recent profits into new equipment.* As agricultural profitability recedes many people expect equipment sales to fall dramatically.
Anecdotally we know about the trend toward newer equipment, but in order to confirm or reject our own notions we decided to take a look at the data and get a better idea of just how many new tractors and combines are out there. To answer these questions, the 1997, 2002, 2007, and 2012 USDA Censuses of Agriculture were investigated.
Combines are used nearly exclusively by crop producers, so the boom in commodity prices, especially corn, should certainly be noticeable in the combine market. Figure 1 shows the total number of combines in the US across the four Censuses. What might surprise some people is that the general trend has been for fewer combines. This has been fueled by farm consolidation and larger farms, overall, coupled with larger and higher capacity combines. The rate at which this is happening, however, might be surprising. Between 1997 and 2012, on average the number of combines in the U.S. decreased at a rate of 2.2% annually. This might seem like a small number, but a trend-line across the data series reveals that this rate is equivalent to 9,300 fewer combines in the U.S. per year.
However, the more important part of the story is on the right axis which shows the percentage of combines that were ‘newer’ (manufactured within 5 years of the date of the Census) . Here, the trend is clearly toward the proportion of newer machines rising. In 1997 and 2002 about 10% of all combines were newer. This crept up to almost 12% in 2007. In 2012, a huge jump in the share of new combines occurred with 16.8% of all combines now falling in the “newer” category.
These numbers are broken down in more detail in Figure 2. In 2007, 41,000 combines fell in the newer category. By 2012 this number surged to 58,300 (an annualized growth rate of 7.1% additional newer combines per year). The increase in the number of newer combines could occur in a couple of different ways. There could be more newer machines per farm or more farms running newer machines. Digging into the data reveals it’s the latter. While the number of newer combines on farms running newer combines stayed about the same for the period (ranging from 1.08 in 1997 to 1.11 in 2012), a huge jump was observed in the percentage of farms that owned a newer machines (Figure 2 right axis). At the 1997 low, only 10.7% of farms owned newer combines, while today 17.8% of farms operate newer combines.
While the total stock of combines has fallen and become more heavily weighted toward newer machines the number of tractors over 100 horse power has be increasing and becoming newer (Figure 3). The number of tractors over 100 horsepower has increased from 915,000 in 1997 to 1.185 million today, a 30% increase. As with combines the percentage of newer tractors on farms has increased substantially as well. The inventory of newer tractors on farms has ranged from 11.0% in 2002 to its current level of 16.1%.
Figure 4 shows that the absolute number of newer tractors on farms is increasing at a substantial rate, about a 3.3% annual growth rate or more than 4,600 additional newer tractors each year.
As with combines, an important consideration is if these newer tractors are a result of more newer tractors on farms, or more farms with newer tractors. In this case, the answer is both. The number of newer tractors increased by 62% (118,000 to 191,000) from 1997 to 2012. One can also see on the right axis of Figure 4 that the percentage of farms that own a newer tractors increased from around 15% in 1997 to 21.6% in 2012.
Figure 4. Total Newer Tractors in the US and the Percentage of Farms that Own Newer Tractors. Source: USDA Census of Agriculture.
The new paint across the U.S. farms creates an interesting situation as the industry transitions to an era of lower commodity prices and lower farm incomes for grain producers. Producers who have made equipment purchases that have improved their farm efficiency might be in a better position for a slower agricultural economy. For instance, the new equipment might allow them to farm more acres with the same number of employees. Conversely, farms that did not improve their efficiency with equipment upgrades (more assets covering the same acres) might find themselves in a pinch; especially if they are serving any debt associated with the equipment.
The higher proportions of new equipment on farms likely mean that many producers will be able to defer future equipment purchases in potentially tighter financial times. This strategy, however, could create challenges for equipment manufactures and ag equipment dealers. Farmers current stocks of tractors are as high as they have been in recent times and, on average, the equipment appears to be as new as it has been for some time.
Even for the case of combines where overall numbers have been declining, the percentage of newer equipment is high in terms of recent Census data. In short, this setup will likely challenge equipment dealers and manufacturers. The ability of farmers to defer equipment purchases will likely make it critical that equipment manufacturers and retailers carefully plan and consider the products and services they can offer to producers keeping their equipment in the fields for more hours and years.
*It’s worth noting that the Section 179 deduction for those years also made equipment investments and upgrade more appealing.
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Photo: Flickr/United Soybean Board