In agriculture there's always the "other foot" syndrome. When things are going really well we're waiting for that other foot to drop on us, cutting the value of a crop or hitting in some other way. Dairy farmers know what I mean (sorry). But for now in the farm equipment business, it appears that a lot of dealers still see good times ahead.
In an ongoing dealer survey conducted by UBS Investment Research, it appears that not only do a majority of dealers see strong demand in 2012, they're optimistic about 2013 too.
Looking at 2012, 61% of dealers responding to the survey say they expect 2012 to end up with higher sales than they saw in 2011. Only 19% of dealers responding saw a potential for less sales.
As for 2013, 25% expect 2013 ag sales to be above 2012 while 26% expect to see a decline. According to UBS, the dealer sentiment was more bullish than expected, which may also surprise investors who expect North American ag equipment sales to flag next year.
That also may be why Deere and Co., can report a super quarterly profit and see its stock drop - because investors don't expect the good times to continue.
As for those upbeat dealers? In the survey 33% believe the ag equipment cycle peak lies beyond 2012, while 61% of dealers expect demand to peak this year. And 7% say the peak happened in 2011. One-third of respondents say the market has continued upside and the peak lies beyond 2012.
So what drivers do these responding dealers say will push the market forward? Tax incentives including accelerated depreciation will play a big role. However, in this latest survey, the dealers saw tax incentives playing a smaller role than they have in past surveys.
What about product improvements and innovations? Dealers are apparently skeptical that improvements will boost replacement demand. Of respondents, UBS reports that 76% do not expect new product to drive higher replacement demand in 2013/2014 versus 2011/2012. About 24% say they do expect innovation to drive replacement.
A look at responses by brand shows that across the board, all brands of dealers remain relatively optimistic going into the rest of 2012 and into 2013. As for the "other foot" - we'll wait for it to drop. In some market segments it has, while in others prices show no signs of slipping.