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Agricultural tractor and equipment makers continue to voice confidence the worst may soon be over for the farm sector. Investors seem to agree.
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.
Here are the five indicators the CEO said they watch.
- Unsold inventories of new equipment need to clear out to a level that matches three to five months of sales demand, which then supports a steady production environment.
- Used equipment inventories need to return to healthy levels, creating the financial and physical capacity for dealers to manage new equipment flow-through.
- The spread between new and used equipment prices needs to normalize, allowing farmers to trade equipment economically and supporting replacement demand.
- Commodity prices need to move sustainably above production costs and provide farmers with confidence that current profitability levels are durable enough to support new equipment investments.
- Farmers need a profitable season behind them and confidence in another profitable season ahead before replacement demand broadens.
“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.”
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. Shares of rivals also appeared to get a boost from the cautiously optimistic outlook. 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%.
Crop condition update: Weekend rains across much of the Corn Belt didn’t stave off a further deterioration in crop conditions for corn.
USDA said the percentage of the U.S. crop rated good or excellent fell to 61% as of Sunday, down from 63% the previous week. Analysts surveyed by Reuters had expected no change. The Pro Farmer Crop Condition Index (CCI) (0-to-500 scale, 500 equals perfect), which provides a single, production-weighted figure, saw a 3.72-point decline to 360.67, as sharp declines in the western to northwestern Corn Belt offset steady to slightly higher condition ratings in the southeastern U.S. Nebraska and North Dakota notched the largest declines of 1.77 points and 0.99 points, respectively.
USDA said 63% of the soybean crop was rated good or excellent, unchanged from last week. Analysts had expected a one-point improvement. The Pro Farmer CCI for soybeans fell 0.77 point to 364.32. Condition changes were very minor in most states, and changes were mixed across regions. Soybeans are entering their crucial weather stage this week, making the next few weeks’ reports of particular importance for the crop.
Spring wheat rated good or excellent rose to 55%, up from 53% a week ago, defying expectations for a one percentage point slip. But the CCI rose just 0.22-point in response to the state-level ratings changes, as declines in the top-producing state of North Dakota negated nearly all of the increases in Montana and South Dakota. Read more about state- and national-level crop ratings and CCI here.
Farm bill fight: The American Petroleum Institute, the primary trade association and lobbying group for the oil and natural gas industry, on Monday said it opposed language in the Senate version of the farm bill released by Senate Agriculture Committee Chairman John Boozman late last week dealing with small refinery exemptions. How to deal with exemptions to ethanol blending requirements under the Renewable Fuel Standard has been a longstanding sticking point in the effort to win passage of legislation that would allow year-round sales of E15.
“API supports permanent, nationwide year-round E15 when paired with common-sense reforms to the Small Refinery Exemption program under the Renewable Fuel Standard,” said Kristin Whitman, API senior vice president of government relations, in a statement. “The proposal included in the Senate Farm Bill fails to deliver that balanced approach, replacing it with flawed provisions that weaken America’s fuel supply instead of providing the long-term certainty consumers, farmers, biofuel producers and refiners need. API opposes this proposal and urges Congress to reject it.”
API has endorsed stand-alone E15 legislation passed by the House earlier this year that would prohibit the reallocation of exempted volumes to larger refiners. The Senate and House proposals treat the exemptions differently.
Boozman, an Arkansas Republican, has scheduled a markup of the bill for Thursday. It includes a one-year delay to cost-sharing requirements for states based on payment-error rates. Democrats have called for a two-year delay. Sen. Cory Booker, a New Jersey Democrat, told Politico’s Morning Ag newsletter that Democrats should remain united and only support a farm bill that includes a clean two-year delay of the SNAP cost shift to state. He also said the bill must provide “immediate, meaningful assistance” to small and midsize farmers, including livestock, dairy, fruit and vegetable producers.
Tough times in wine country: Grape growers in California are burning vineyards and leaving fruit to rot on the vine in response to a drop in demand tied in part to less interest in wine by younger consumers, the New York Times noted in a look at California’s wine industry. The report, citing data from the California Association of Winegrape Growers, noted that last year roughly 38,000 acres of wine grapes were pulled out across California, about 7% of all grapes planted statewide. More than half a million tons of grapes also went unpicked. The report noted that the fall grape harvest began in California this month, and thousands of tons of grapes are expected to be left on the vine again. Hundreds more wineries are expected to close in the next two years, by which point the industry is expected to bottom out, experts say.
- “In our 54 years in the grape and wine business, we’ve never seen the amount of change and turmoil and chaos that’s going on right now,” Steve Lohr, president of J. Lohr Vineyards & Wines, one of the largest wine producers in Paso Robles and Monterey County, told the newspaper.