Farm Equipment Demand Surges Amid Rising Crop Prices
Corn and Soybean Prices Climb
The US farming industry is booming as prices for agricultural commodities including corn and soybeans continue to surge. As a result, farmers are spending more on equipment, with many farms updating their equipment after using old machinery for years. This is because they wanted to save money during the agricultural recession which has been hitting the US for a long period of time.
In the first eight months of the year, retail sales of high-horsepower tractors jumped 27% year-over-year. Sales of other farm equipment are also up by double digits, which has boosted profits for Deere (DE).
Strong Demand From China Drives Growth
The US farm industry struggled last year as demand from China surged and bad weather in key agricultural areas hurt crops, causing prices to jump. Now that farmers are better able to keep up with demand, agricultural exports for the fiscal years 2021 and 2022 are forecast to set records. As a result, net farm income is predicted to reach $113 billion in 2021—a 20% year-over-year increase.
US cropland is also in high demand among farmers and investors. This has driven the average price per acre of farmland to a record $4,420, marking an 8% increase year-over-year. Farmland prices in Iowa, the nation’s largest corn-producing state, jumped 25% in the first half of 2021.
Tough Times Ahead?
US farmers are seeing a rebound for now, but some economists warn there could be trouble down the road. Strong demand for corn and other agricultural commodities could slow down. Farmers are also likely to increase plantings to take advantage of high prices, which may pressure commodity prices. Additionally, the federal payouts farmers get from the government are set to drop 39% this year, meaning farmers will have less money to weather price changes.
Heavy equipment prices are surging at the same time farmers are making more money off their crops. But these trends may not continue, which could put some farmers and their equipment providers in a tough position.
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