What is the economic outlook for 2024?  

UBS economists expect economic growth to slow sharply in the next few quarters, with a mild contraction worth half a percentage point in the middle of the year. After posting projected 2.6% growth in 2023 (as of December 2023), the UBS economics team sees GDP growth dropping to just 0.3% in 2024. Accordingly, they expect the unemployment rate to rise to nearly 5% by the end of the year. With that added disinflationary impulse, they expect monetary policy easing in 2024 to drive recovery in 2025, pushing GDP growth back up to roughly 2-1/2%, limiting the peak in the unemployment rate to 5.2% in early 2025.

 

Are manufacturers going to continue price increases in 2024 at the same rate they have done the past few years?  

There is still inflation in the broad economy, and machinery manufacturers are not immune to this inflation. However, because the rate of inflation is slowing, the rate of price increases the manufacturers are passing on to customers is also slower. Demand for machinery is also a bit slower, and the market will only bear so much more of an increase. Deere, for example, has already projected that pricing in their agriculture business will be 1-1.5% for their fiscal year 2024. That includes price increases in North America of more than 2%, with South America expected to be a bit weaker. We expect other manufacturers will project similar increases.

 

What is supply going to be like for 2024?  

We expect production of new agricultural machinery products to decline by roughly 10% in 2024. We expect farm cash net income to decline as grain prices have declined. Lower input costs help, but the overall trend in income is lower.

 

A lot of dealers are seeing orders come in from orders that were placed two years ago, they are coming in with orders that were also placed a year ago and this year too.  That is a lot of supply coming in at once, are manufacturers going to help with terms or some sort of financing for dealers since they will have a large amount of inventory sitting on the ground that is not sold?  

We think manufacturers don’t see a broadly over-supplied market at the start of 2024. Deere’s reported dealer inventory metrics for combines and 100 horsepower and above tractors are roughly in-line with the prior 5 year average. There may still be pockets of excess-inventory, and we expect the manufacturers to offer discounts to manage these inventory levels. The price increases mentioned above, are intended to include discounts.

 

How are manufacturers going to avoid having too much new inventory on the ground (a massive surplus) like they have done in previous years?  (too much inventory and nowhere to go with it)

We think the manufacturers are reducing output in 2024 with the goal of producing in-line with retail demand. If it becomes clear that inventory is building up, they will produce below retail demand. That is currently the case in Brazil, where some excess inventory has accumulated. However, we don’t see that as the base case yet in the US and Canada. Conditions may have deteriorated slightly over the last few months, as grain prices have weakened further. We will continue to monitor the leading indicators to gauge the outlook.