• Trade & Commerce

Farm Machinery



Increasingly complex farm machinery is an essential contributor to the productivity gains of U.S. agriculture. Expenditures on farm machinery in 1995 made up 13 percent of total production expenditures.  Farm machinery sales in 1995 and 1996 leveled off somewhat after showing significant increases in 1993 and 1994. The increased value of farm assets and higher farm cash receipts have helped maintain farm machinery sales.

Farm machinery and equipment are increasing in complexity, price, and, in many cases, size.

Expenditures on farm machinery make up 13 percent of total production expenditures and farm machinery assets are 9 percent of total farm assets.  Trends toward conservation tillage and no-till have prompted inventions such as the air drill and the coulter chisel plow.  Precision farming is the impetus for new inventions, including continuous yield monitoring equipment and variable-input gaging devices, and will likely inspire more inventions in the near future

Operation of farm machinery can cause soil compaction and contribute to engine emissions.

These environmental effects can be lessened by using specific farming practices and special exhaust systems and fuels.  Engine exhaust emissions will be reduced as new tractors meet EPA requirements by the year 2000  The risks in operating farm machinery make agriculture one of the Nation’s most hazardous occupations, but improved safety measures are reducing accidents and injuries

Farm Machinery Sales

After showing a significant increase in 1994, purchases of farm machinery continued to increase through 1996, but at a slower rate.  Farm tractor purchases increased 9 percent from 1993  From 1994 to 1995, the increase in purchases was 2 percent  Purchases increased 4 percent in 1996.  Combine sales were also up in 1995, increasing by 8 percent, but slowed in 1996. Tractor and combine sales are indicators of the general farm machinery economy; retail sales data on other machinery are not available.

Several demand factors were favorable for increased purchases of tractors and farm machinery in 1996, and purchases increased in most horsepower classes. Tractor sales in the 40-99 horsepower category increased 4 percent in 1996.  Tractor sales in the

100-and-over horsepower category also increased 4 percent.  Purchases of four-wheel-drive tractors stayed the same.

Farm Machinery Safety

Agriculture is one of the Nation’s most hazardous occupations.  Estimates of annual agricultural deaths vary between 26 and 50 workers per 100,000, compared with an annual rate of 11 for all industries combined. Little data are available on farm accidents, injuries, and illnesses.  The census of agriculture included questions on the number of injuries and deaths on farms for the first time in 1992.  Runyan, in 1993, published a review and synopsis of data sources on farm accidents.  Nationally, some data are available from several sources:  the Department of Labor, Department of Commerce, Product Safety Commission, Department of Health and Human Services, National Safety Council, Department of Agriculture, and the State Workers’ Compensation Systems.  Also, some data are available from State and local sources, including newspapers, coroners, hospitals, and medical personnel.

Farm-related injuries totaled 64,813 in 1992 according to the census of agriculture  There were 673 farm-related deaths.  The census does not report the cause of injuries and deaths, but many were likely related to machinery use.  A recent study of farm accidents in Kentucky found that 82 percent of tractor-related fatalities were due to rollovers.  Most of these occurred while mowing  All the victims were male. The median age of the tractors was 23 years, ranging from 2 to 41 years. Most of the fatalities could have been prevented had the tractor been equipped with rollover protection (ROPS) and seatbelts.  ROPS and seatbelts were not required on new tractors until 1976.

The farm machinery industry has done much to improve farm safety.  Rollover protection is provided on new tractors. Fully enclosed cabs offer protection on most larger tractors, combines, and other self-propelled equipment.   Power takeoff shields have been standard equipment for many years.  Warning decals are placed near hazardous locations.  More effort to educate farmers, their families, and farmworkers about the dangers in operating farm machinery and equipment could help reduce injuries and fatalities.

There are economic costs associated with deaths, injuries, and illnesses from farm-related causes.  A New York study of people killed in farm accidents estimated that from $218,001 to $362,047   Costs include health care, discounted future earnings, and special devices such as wheelchairs and lifts.  In some cases, the farm has to be sold to help pay for medical expenses.  Society also bears many of the costs of farm accidents when the family is unable to pay medical costs and expenses.

Table 3.4.1—Domestic farm machinery unit sales, 1986-96

  1986 87 88 89 90 91 92 93 94 95 96

40-99 hp

30,800

30,700

33,100

35,000

38,400

33,900

34,500

35,500

39,100

39,700

41,200

100 hp and over

14,300

15,900

16,100

20,600

22,800

20,100

15,600

19,000

20,400

20,500

21,400

Four-wheel-drive

2,000

1,700

2,700

4,100

5,100

4,100

2,700

3,300

3,700

4,400

4,400

All farm wheel tractors

47,100

48,400

51,700

59,700

66,300

58,100

52,800

57,800

63,200

64,600

67,000

 

Farm machinery plant capacity being utilized was estimated at 66 percent for 1994, compared with 24 percent in 1986  Plant capacity utilization increased every year since 1992.  The low rate in 1986 followed several years of low demand for farm machinery and large dealer inventories. Total or full production capacity was low throughout most of the 1980’s as farm machinery manufacturers

cut back, consolidated, and merged in response to low sales and economic pressures.  The same capacity utilization rate in the 1970’s produced more farm machinery since full production for the industry was higher.  Also, capacity utilization was higher, 83-85 percent throughout the 1970’s, as the farm machinery industry responded to high demand caused by high farm incomes, large exports, and high real estate asset values

Capital Expenditures and Depreciation

Another indicator of the economic health of the farming sector is the difference between capital expenditures and depreciation, which represents the amount of capital accumulation or depletion.  Capital expenditures are the dollar value investment in tractors, trucks, farm autos, and farm machinery as opposed to units of tractors and combines sold. Capital expenditures are the purchases of new and used durable machinery and equipment (less trade-ins) that will be used (and depreciated) over a number of years  Depreciation, also referred to as economic depreciation or capital consumption

Capital expenditures on tractors, trucks, and farm machinery, in nominal dollars, reached a peak in 1979 and, despite recent gains, are still $3 billion below that peak  In real terms  In 1985, real depreciation reached $8.5 billion and real capital expenditures were $4.2 billion, a gap of $4.3 billion. In 1995, capital depletion was $1.1 billion, about the same as in 1994.

Capital depletion in the farming sector may be due to several reasons.  The mechanization of agriculture is changing.  Tractors, combines, and other powered machinery have been getting larger and more factors, including machinery prices, interest rates, farm equity, farm income, and cropland used for crops  Machinery prices and interest rates determine the cost of purchasing farm equipment.  Farm equity is the result of assets minus debt and is a measure of the collateral available to back farm machinery loans.  Farm income is determined from cash receipts, less production expenses, and is an indication of cash flow available to purchase farm machinery.

efficient.  Tillage practices have been changing from conventional tillage, which involved working the soil many times prior to planting, to reduced and no-till practices, which require fewer times over the soil, help conserve soil, and prolong the useful life of tractors and equipment.  Also, farming was very profitable in the late 1970’s, which encouraged farmers to buy more and larger tractors and machinery than needed for efficient operations.  More than 157,000 farm tractors were sold in 1973, compared with only 47,000 in 1986.  In the early 1980’s, farm income declined, farmers bought less machinery, and the farming sector remained productive by keeping old machinery in repair and using the extra machinery capacity built up during the late 1970’s.  Delaying expenditures on farm machinery can result in higher repair costs, but there is usually a period of time when the difference in cost between keeping an old machine and buying a new one is small.

At some point in the future, capital investment should equal and surpass depreciation.  The gap between capital expenditures and depreciation narrowed in the late 1980’s, but increased again in 1991.  Capital depletion has been a little over $1 billion each year since 1993.  However, this was only about 3 percent of the total capital inventory stock of machinery on in technology and changes in farming practices.  More farmers are buying the specialized machinery needed to comply with conservation plans. Also, capital expenditures likely increased in 1996. These factors should soon bring back capital accumulation in the farming sector.

Factors Affecting Machinery Demand

Farm machinery prices rose 4 percentage points from 1995 to 1996  Increased machinery prices depress farm machinery demand.  The April 1997 prices-paid index (1990-92=100) for farm machinery was 127, 2 points above 1996; prices for trucks and autos also rose 2 points.  The price index for all production items rose only 2 points.

The farm machinery nominal interest rate decreased to 8.6 percent in 1994, the lowest in 9 years. However, the real prime rate (adjusted for inflation) reached a low in 1993 and steadily rose to 6.3 percent in 1995  Both the nominal and real farm machinery interest rates lag behind the prime rate and fell in 1996—to 9.7 percent and 7.6 percent.  Higher interest rates have a negative effect on farm machinery As interest rates rise, the total cost of machinery bought on credit increases, dampening purchases. While the real rate reflects the actual cost of

borrowing, the nominal rate likely has more effect on machinery purchases because it is more obvious to farmers.  The importance of real versus nominal interest rates depends on the extent that farmers take into account expectations about inflation rates.

One of the more favorable farm machinery demand indicators has been sizable increases every year since 1991 in the value of farm equity Equity increased from $705 billion in 1991 to $880 billion in 1996.  The increase in equity is due to large jumps in asset values, primarily real estate.  The value of farm real estate assets has also increased every year since 1991  Total assets include both real estate and nonreal estate items, and, when increasing, have a positive effect on farm machinery demand  Farm business assets were $1,035 billion in 1996, an increase of $57 billion (6 percent) from 1995.  Farm business debt, which has a dampening effect on farm machinery demand, was up $4.6 billion in 1996, an increase of 3 percent.  When farm equity increases,  more collateral is available to finance farm machinery capital expenditures.  Farm equity increased again in 1996. The ratio of debts to assets decreased to 15 percent from 1995 to 1996, the lowest ratio since the early 1960’s, indicating a favorable borrowing position.

Farm income has a lagged effect on machinery sales, with higher purchases a year or more from the year of increased income Increases in income have a positive effect on farmers’ expectations about future income, which spurs machinery demand.  Net farm income is cash income plus or minus the value of inventory changes, nonmoney income, noncash expenses, and operator dwelling expenses.  Net farm income was up 7 percent in 1996 to $51.7 billion, from the previous high of $48.4 billion in 1994  Cash receipts were up every year, 1992-96.

Commodity prices, a major determinant of cash receipts, rose significantly in 1996, especially for wheat, corn, and soybeans.  Increased commodity prices, alone, with no changes in other input factors, would normally brighten the outlook for the farm economy and increase the demand for farm machinery.  Higher crop prices, coupled with large inventory adjustments, resulted in high net farm income in 1996.  Higher commodity prices are the result of low world carryover stocks, primarily caused by drought and adverse weather conditions in major grain growing countries.  High prices also reflect the high export demand for several major commodities. Commodity exports were $60.4 billion in 1996, up $4.6 billion from 1995, an 8-percent increase  This is the highest level of commodity exports in at least 10 years.  Wheat, feedgrains, and oilseeds compose the largest share of commodity exports.  The upward trend in commodity exports favors increased investment in farm machinery.

In 1996, idled land decreased to 34 million acres from a high of 77.7 million in 1988.  As Conservation Reserve Program (CRP) contracts expire, some of that land will come into production, possibly spurring demand for farm machinery.  Some farmers will still have the same complement of machinery that existed before they signed up for the CRP.  Others who may have put the entire farm in the CRP and reduced their machinery inventories will need to obtain more equipment.  The overall effect of reductions in CRP acreage should be some increase in demand for farm machinery.

Factors Affecting Demand for Farm Machinery

  • Agricultural exports—Exports of U.S. agricultural products
  • Cash receipts—Sales of all crop and livestock commodities.  Cash receipts are like "money in the pocket" and correlate closely with purchases of farm machinery.
  • Debt-asset ratio—Farm business debt divided by farm business assets.  Lower debt/asset ratios mean more favorable borrowing positions and more investment in tractors, combines, and other farm machinery.
  • Equity—Total assets minus debt.  Farm equity represents a farmer’s net worth; the greater the equity, the more collateral the farmer has available to back loans for capital investment
  • Farm business debt—Real estate and nonreal estate debt.
  • Farm machinery loan rate—Average annual interest rate as reported in the quarterly survey of commercial banks by the Federal Reserve System  An inverse relationship exists between interest rates and the purchase of farm machinery.  Lower interest rates imply greater purchases of farm machinery.
  • Idled acres—Cropland idled through commodity programs or enrolled in the Conservation Reserve Program.  More land idled means less cropland to be cultivated, seeded, and harvested.  Machinery is used less, prolonging useful life.
  • Interest expenses—Interest on both real estate and nonreal estate debt.
  • Net cash income—Gross cash income (cash receipts, direct government payments, and farm-related income) minus cash expenses.
  • Net farm income—Gross cash income, nonmoney income, and inventory adjustments minus total production expenses. Net farm income has a high correlation with machinery purchases when purchases are lagged several months behind income.
  • Nonreal estate assets—Includes livestock, crops, machinery, motor vehicles, and financial assets.
  • Real estate assets—Land and service structures.  Increasing assets place a farmer in a more favorable position for obtaining capital investment loans.
  • Real prime rate—Bank prime rate, adjusted for inflation by the gross domestic product deflator.
  • Total production expenses—Total of cash expenses (inputs purchased, such as feed, seed, fertilizer, pesticides, fuel, repairs, custom work, and labor; interest; rent; and property taxes) plus noncash expenses, which include capital replacement and accidental damage.

Changes in Farming Practices and Machinery

Two major change factors influencing the farm machinery industry are the emerging interest in precision farming and the continuing adoption of conservation tillage and crop residue management practices.

Precision Agriculture

The newest innovation in agriculture is the trend toward computerized equipment that allows precise quantity and placement of inputs such as fertilizer, seed, and pesticides This new technology is known variously as precision farming, site-specific farming, soil-specific crop management, prescription farming, focused fertilizing, spatially variable controlled crop production, and site-specific nutrient management systems.  Ideally, precision farming will improve input efficiency and reduce the use of chemicals and fertilizers.

However, unresolved questions need further research. For example, what size of farming operation will benefit most from precision farming?  The complexity and expense of the machinery and operations may make precision farming more plausible by large-scale operations, perhaps further concentrating U.S. agriculture.  On the other hand, the costs of yield monitors, global positioning computers, and other precision farming equipment is decreasing.  And expensive variable-rate fertilizer, pesticide, and seeding equipment is being increasingly supplied by dealers on a custom or rental basis, forestalling large investments at the farm level for equipment that will quickly become obsolete as newer technology is developed.  The issue then becomes one of managerial time required to learn and apply the technology.  Large-scale farmers may not be able to spend as much time on this technology as medium-scale farmers.  Also, small-scale farmers who spend a lot of time working off the farm may not be able to devote much time to precision farming.

Precision farming generally employs satellite technology, which tracks equipment location within a few meters in a field.  Site-specific information is important because crop yields can differ significantly throughout a field.  Computers record crop yields, soil characteristics, and other data continuously within each field.  Fertilizers and pesticides can then be specified from information in the computer data base. This information is used to vary seed, fertilizer, and pesticide quantities to site-specific field locations

Precision farming is still in its infancy.  Equipment is expensive; variable-rate fertilizer applicators cost as much as $250,000.  However, prices are declining as manufacturers develop more efficient ways of producing the specialized computers, receivers, metering devices, and variable-rate seeders, sprayers, and fertilizing equipment.  Farmers also face time constraints in learning precision farming.  Few courses or training sessions are available and most of the subject matter is highly technical, involving computers and space-age locating, monitoring, and metering equipment.

Researchers at ARS (Agricultural Research Service, USDA) and several universities are investigating the relationships between soil conditions, moisture, nutrient balances, and crop yields, and how these relationships bear on input applications.  The farm equipment industry also researches precision farming and has outpaced public research in many areas.  Preliminary research indicates improved efficiencies in the use of fertilizers and pesticides. Instead of broadcasting nutrients and chemicals across the field, precision farming prescribes appropriate amounts by soil, moisture, nutrient balance, and other site-specific factors.  In addition to improving input inefficiency, precision farming has the potential to lessen adverse environmental effects of current farming practices.  By improving input efficiency, precision farming can reduce residual quantities that may otherwise enter streams and groundwater.

While precision farming more commonly refers to site-specific field tracking technology and computerized metering equipment, it may also apply to other innovations.  Among the newest is a cultivator that tills between plants within a row  It incorporates video cameras and computer technology with robotics to eliminate weeds to within one-third inch of the plant.  It can operate at speeds of up to 10 miles per hour, can be used at night, and can distinguish between weeds and crops. While still in the testing stage, it has promise for the cultivation of row crops such as corn, cotton, lettuce and tomatoes.  This technology could reduce the need for herbicides used to eliminate weeds.

Crop Residue Management

The other major change occurring in the farm machinery industry is the continuing development of conservation tillage machinery and equipment used for crop residue management.  Tillage equipment used to practice conservation tillage involves several

designs aimed at leaving at least 30 percent of the soil surface covered with crop residue.  This new and innovative machinery goes by various names, including air drill, mulchmaster, mulch tiller, and conservation disk chisel.  Machinery is designed to leave residue on the surface by tilling the ground under the past crop residue instead of turning the ground over and burying residue as was done with moldboard plows and large offset disks.

With conservation tillage, the ground is worked fewer times during a crop cycle than with conventional tillage, leaving more residue on the surface.

Increased residue helps prevent soil erosion.  No-till engages the ground just once, when planting the seed. Other benefits of crop residue management (and fewer times over the field) are less machinery and equipment wear and lower .  Capital expenditures are reduced as are fuel and labor costs.

Farm Machinery Trade

The United States had a trade surplus in farm machinery of $1.85 billion in 1996, up from $1.04 billion in 1995.  Exports of farm machinery have exceeded imports for the last 7 years Major export and import countries were Canada, the United Kingdom, Germany, and Japan.

Total imports and exports, and consequently the farm machinery trade balance, can be volatile from year to year.  A single large sale of combines or irrigation equipment can significantly affect total exports. Changes in factors that affect U.S. demand for farm machinery will affect import totals.  Both imports and exports can increase and the trade balance decrease, as happened in 1994

Exports of farm machinery totaled $4.8 billion in 1996, up 16 percent from 1995  Imports for 1996, $3.0 billion, decreased 4 percent from 1995

The largest export category—tractor gear boxes, axles, chassis, engines, brakes, differentials, wheels, mufflers, exhausts, steering assembles, and parts and accessories not elsewhere classified—accounted for 22 percent of farm machinery exports ($1.0 billion) in 1996.  Farm tractors over 100 horsepower made up 14 percent of 1996 exports.  Other big export items included combines and harvesters, horticultural equipment, irrigation equipment, and agricultural engines.

Canada was the major export market in 1996, accounting for 32 percent of U.S. farm machinery exports.  Canada was also the major supplier of farm machinery imports into the United States, accounting for 22 percent of all 1996 imports.