Agricultural tractor and equipment makers continue to voice confidence the worst may soon be over for the farm sector, but a full-fledged recovery in the equipment market may still be missing some key ingredients.
CNH Industrial shares finished more than 5% higher Monday after reporting second-quarter earnings of 13 cents a share on sales of $4.8 billion. Wall Street analysts were looking for profit of 10 cents a share on revenue of $4.8 billion. More important, CNH now expects agricultural sales in 2026 to be flat year over year. That may not sound all that encouraging, but it compares to previous guidance that projected ag revenues to be flat to 5% lower.
In a post-earnings report conference call with analysts, CEO Gerrit Marx acknowledged that CNH continues to navigate a “difficult point in the agricultural equipment cycle,” while breaking down the indicators that he said have historically proved to be reliable guides for both the timing and the strength of the next up cycle. At the same time, he noted that not all of them are yet in place.
5 key indicators
Here’s a summary of the five indicators Marx watches.
- New Equipment Inventory: Unsold inventories of new equipment need to clear out to a level matching 3 to 5 months of sales demand to support steady production.
- Used Equipment Inventory: Used inventory must return to healthy levels so dealers have the financial capacity to take in trade-ins.
- Price Normalization: The price gap between new and used equipment must normalize so farmers can trade in economically.
- Commodity Profitability: Commodity prices need to move sustainably above production costs, giving growers confidence to invest.
- Multi-Season Confidence: Farmers need one profitable season behind them and confidence in another ahead before broader replacement demand kicks in.
“What remains largely absent are the fourth and fifth indicators,” Marx told analysts. “Commodity prices remain at or below breakeven levels for many growers, while fuel, fertilizer and transportation costs remain elevated. As a result, overall farm profitability remains under pressure and farmers remain cautious with larger capital investment decisions beyond immediate replacement demand.”
‘L'-shaped recovery
Put all that together and it explains CNH’s baseline expectation for an L-shaped recovery, with 2027 retail demand remaining broadly flat, he said.
“Beyond replacement demand, however, it will take stronger farm profitability and greater farmer confidence to support a more pronounced industry recovery,” Marx said. “While we don’t yet see evidence of a sustained recovery, conditions are becoming more constructive and several of the foundational elements required for the next phase of the cycle are falling into place.”
Marx also offered an interesting assessment of farm aid and its effect on equipment demand, saying it isn’t a demand driver. “Farm bills that subsidize crop insurance or borrowing rates, for example, this is all helpful, but it does not set the market recovery in motion,” he said.
CNH shares are up 17% so far this year through Monday’s close. Shares of rivals also appeared to get a boost from the cautiously optimistic outlook on Monday. Deere & Co. shares rose 2.1%, extending a year-to-date gain to 30%. AGCO Corp. shares rose 1.7% Monday, trimming a year-to-date loss to 0.4%.