Farming and agricultural equipment had a tough 2014. A sharp decline in prices of grains, including corn, soybean and wheat led to a fall in earnings of farmers. This in turn led to a fall in demand for agricultural equipment. This segment continues to face headwinds in 2015, but the outlook may not be grim for all companies from the sector.
Lower Food inflation
The Consumer Price Index (CPI) dropped 0.3% in November, witnessing its biggest decline since Dec 2008. The rate of decline was also wider than the consensus estimate of a 0.1% drop. Negative trend in oil prices seems to be the main reason behind this decline.
Meanwhile, corn prices are expected to fall further. In September, corn futures slumped to their lowest level in five years. According to the USDA, corn prices are expected to move below $4 a bushel during the second half of 2015 and through 2016. This is a far cry from the $7 levels witnessed in 2013.
Other Sectoral Headwinds
Data from the Association of Equipment Manufacturers shows that total farm machinery shipments fell 12% in 2014 year on year. Additionally, late model used equipment prices have also declined. The decline in prices is expected to continue into 2015. This will provide farmers with bargains not witnessed in a decade.
Another major industry headwind is uncertain u.s. tax policy on the farming sector. While Sec 179 was extended til the end of 2014, allowing major savings on depreciation, it is unknown whether such tax breaks will be available this year.
Additionally, higher emission standards are increasingly gaining importance. While rapid innovation in the farming equipment arena is taking place around the world, this issue is likely to be a cause for worry for the sector.
North American Market Stronger
According to a survey by Agrievolution Alliance, the U.S. is likely to experience lower order intake. However, certain companies will continue to have considerable national demand for their products. Several companies will anticipate the downturn taking place in the sector after several good years and adjust output accordingly.
