Farm Equipment Makers Worry Over Commodity Prices
While the country’s economy was slumping over the last five years, the American farm economy was booming.
Companies that manufacture tractors and other farm implements have done exceptionally well, as many farmers have been replacing their pricey equipment every year.
But with commodity prices dropping and a major tax break in jeopardy in Congress, there are fears that business will start to stall.
ROBIN YOUNG, HOST:
Well, staying in the heartland, the country's economy slumped over the last five years, but the American farm economy boomed. Companies like Caterpillar that makes tractors doing exceptionally well as many farmers replace their pricey equipment every year. But with commodity prices dropping and a major tax break in jeopardy in Congress, will business stall?
From HERE AND NOW Contributors Network, Harvest Public Media's Bill Wheelhouse has more.
UNIDENTIFIED MAN: So in the end of the day, the big push right here is more efficiency. So you'll be now able...
BILL WHEELHOUSE, BYLINE: At a farm trade show in Decatur, Illinois in August, a representative of Gleaner Combines sells the finer points of the shiny equipment. All across the Farm Progress Show, these mechanical marvels are the star attractions as farmers do their window shopping. But they don't come cheap. The price can reach up worth at a half million dollars. Equipment is on the minds of farmers, as this is harvest time.
On this windy mid-September day, Len Corzine and his son are getting into the field to start the harvest. A brand-new green John Deere combine picks the corn and spits the chewed-up stocks and cobs back onto the field. The Corzine's farm 3,000 acres in Christian County in Central Illinois. The 63-year-old Corzine says he has been buying new combines and tractors almost every year for a long time, and the reason is clear.
LEN CORZINE: The most expensive time we have is if the combine has to stop. I mean, that is what it is all about in farming. You know, you've got to get it planted in a timely manner, and you've got to get it harvested.
WHEELHOUSE: The combine will only be used this fall on his farm. He's already ordered a new one for the next year. Corzine says the local dealer sells his used combines and tractors to the same area farmer, who then uses them for a year before trading off for Corzine's next machine. It's a cycle that farmers have been on in recent years. Over the last six years, new tractor sales have jumped more than 10 percent, combine sales 8 percent.
Analysts say this is partly because of the farmers' large profits in the last few years, but tax incentives also are credited with helping disperse sales. Purchasers can get half-million-dollar deductions on equipment, way up from the $25,000 limit 10 years ago. There's also a bonus deduction for buying new equipment.
But now, corn prices have fallen, and the generous investment tax deductions that were increased as part of the stimulus may be returned to lower levels. Roger McEowen, director of Iowa State University's Center for Agricultural Law and Taxation, says at the end of this year, one of the deductions is set to decrease, another is set to expire.
ROGER MCEOWEN: So without those, you take those out of the mix, I think it's pretty reasonable to say that we would probably see us lacking in demand for ag equipment, particularly new ag equipment.
WHEELHOUSE: A mile and a half down the road from Corzine's farm, it's the headquarters for Sloan Implement, one of the larger John Deere dealers in the nation, with 17 locations in Illinois and Wisconsin. Company president Jim Steck says tax changes could mean some speed bumps ahead, yet...
JIM STECK: It would affect it a little bit, but I still think guys are going to trade equipment. Because if there's technology changing and they don't want equipment that's worn out because of downtime, they're still going to trade equipment.
WHEELHOUSE: Technology is perhaps the most critical point to farmers like Corzine. The new combine can tell him about the quality of the corn, the size of the harvest, and can essentially drive itself using GPS coordinates.
CORZINE: You turn it on, it looks about like an airplane.
(SOUNDBITE OF BEEPING)
CORZINE: But you've got, actually, two monitors. And next year, probably, they're going to have those combine, where there's just one. And those kinds of things...
WHEELHOUSE: But technology alone doesn't sell tractors. In with falling grain prices, there may be pressure for Congress to continue those tax breaks a while longer. For HERE AND NOW, I'm Bill Wheelhouse in Springfield, Illinois.
YOUNG: And Bill's story came to us from Harvest Public Media, a public radio reporting project that focuses on agriculture and food production issues. Take a break. We'll be back with author Elizabeth Gilbert. HERE AND NOW. Transcript provided by NPR, Copyright NPR.