New tariffs likely to have impact in coming months
By Jessica Domel
Multimedia Reporter

A newly-passed tax reform package and hope for the future of the agricultural economy led to more tractor and combine sales in the first half of 2018, but that renewed optimism may not continue into the second half of the year.

From January to June, sales of self-propelled combines in the United States grew 20.5 percent compared to the same timeframe in 2017.

Four-wheel drive tractor sales were up five percent, while two-wheel drive sales increased 6.5 percent, according to new data from the Association of Equipment Manufacturers (AEM).

“We’ve been enjoying some nice year-over-year growth and nice month-over-month growth for the last six months, so it sort of points to what we’re dubbing as a replacement recovery for the tractor and combine market in the United States,” Curt Blades, AEM senior vice president for Agriculture Services, said.

For the past five to seven years, agriculture has been in a bit of a slump, Blades said, because farmers saw higher commodity prices in the years before. Then, the bottom fell out of the market.

“I think what we’re finding out is that the economics were such that many of the farmers were finding it was just finally time to replace that equipment,” Blades said. “Maybe they had deferred the purchase of something new for a year or maybe two years, and it finally got to where it just made sense for them to replace that equipment.”

In November, analysts started seeing a more positive attitude in rural America about the economy, according to Blades, and that led to additional tractor and combine purchases.

“When you looked at the turn of the year with the tax reform that was successfully passed right before Christmas and that it was pretty good for farmers,” Blades said.

While all tractor and combine sales categories were up, sales of under 40 horsepower tractors surpassed larger machines.

“I know in Texas that small horsepower utility tractors are a pretty darned important market, and that’s not exclusively row crop farmers or even farmers in general. That includes a lot of folks who may have acreage or may have an income somewhere else, and they have a need for a tractor to do some utility on their property,” Blades said.

While the news for the first part of the year is positive, the global tariff situation and rising tensions between countries may take a toll on sales in the second half of 2018.

In April, the United States implemented a 25-percent tariff on steel and a 10-percent tariff on aluminum imported into the U.S.

As a result, other countries, including China, the European Union, Canada and Mexico, have levied their own tariffs on exports from the United States.

Steel and aluminum are important components in the cost structure for a piece of equipment. If those costs increase, the price of machinery is also likely to rise, according to Blades.

“From the farm side, what’s probably a bigger concern is some sort of trade retaliation or trade war with some of our big trading partners, China being primary,” Blades said.

The tariffs will impact more than American farmers, ranchers and dairymen. They could have a ripple effect on other industries until they’re offset or new export markets are established.

Those effects could be reflected in the report released by AEM later this year.

The full ag equipment sales data report is available at www.AEM.org.