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US farmland, ag machinery market declines extend into 2016

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The decline in US farmland prices has extended into another year, and at an accelerating rate, while the pulse of the agricultural equipment market has weakened to the faintest on record.

An index of farmland prices in major US agricultural states compiled by Creighton University came in for January at 23.9, well below the level of 50.0 which indicates a neutral market,

The drop – the 26th successive month of decline – was also below the figure of 23.9 recorded for December.

And it came amid a continued dent to farm profitability from weak crop prices, which are well below the cost of production for many farmers – especially those with land rents to pay, as data from Iowa State University earlier this month showed.

"The strengthening US dollar and global economic weakness have pushed grain prices down by 8%, and slaughter cattle prices 28% lower over the past 12 months," said Ernie Goss, the Creighton economics professor in charge of the report.

'Pull in their horns'

The impact of the weaker crop prices on farm equipment purchases has been even more severe, with a sector index dropping to just 7.0 points – setting a fresh record low, below December's figure of 8.8 points.

The weaker agricultural commodity prices "have discouraged farmers from buying additional agriculture equipment, and have negatively affected the agriculture equipment dealers and manufacturers," Professor Goss said.

At Anchor State Bank in Anchor, Illinois, one of the lenders surveyed by Creighton for its report, bank president Jim Eckert said: "Recent weakness in grain prices and increases in inputs have caused area farmers to 'pull in their horns'."

Market shrinkage

According to the Association of Equipment Manufacturers, sales in the US of four wheel drive tractors, used by cropping farmers, tumbled by 39% to 3,111 units last year.

Sales of larger two wheel drive tractors too, above 100 horsepower, as employed by many livestock farmers, also fell steeply, by 26% to 23,930 vehicles, although the market for small tractors for the likes of recreational use proved robust.

Combine sales in the US dropped by 33% to 5,381 units last year.

And ag giant Deere & Co, maker of John Deere machinery, has forecast further weakness in the sector, two months ago forecasting a drop of 15-20% in industry sales for agricultural equipment in Canada and the US in the year to the end of October.

By Mike Verdin

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