Farm Machinery and Equipment

SIC 3523

Companies in this industry

Industry report:

This category covers establishments primarily manufacturing farm machinery and equipment, including wheel tractors, for use in the preparation and maintenance of the soil; planting and harvesting of the crop; preparing crops for market on the farm; or for use in performing other farm operations and processes. Included in this industry are establishments primarily engaged in manufacturing commercial mowing and other turf and grounds care equipment. Establishments primarily engaged in manufacturing farm handtools are classified as the Cutlery, Handtools, and General Hardware industries; and those manufacturing garden tractors, lawnmowers, and other lawn and garden equipment are classified in SIC 3524: Lawn and Garden Tractors and Home Lawn and Garden Equipment.

Industry Snapshot

Although still dealing with the effects of the recession of the late 2000s, U.S. farm equipment manufacturers were hopeful as the second decade of the twenty-first century began. According to the U.S. Department of Agriculture (USDA), U.S. farmers spent $11.4 billion on tractors and self-propelled farm machinery and an additional $5.9 billion on other farm equipment in 2008. These figures both represented increases from the previous year, when expenditures were $8.6 billion and $4.4 billion, respectively.

The Association of Equipment Manufacturers (AEM) reported that 87,053 farm tractors were sold in the United States between June 2009 and June 2010, representing an increase in sales of 2.4 percent from the previous year. About 97 percent of these were two-wheel-drive tractors; the remaining 3 percent were four-wheel-drive. During this same period, U.S. farmers purchased 3,822 self-propelled combines, 1.2 percent fewer than the year before.

Background and Development

The major expansion period for U.S. agriculture came during the late nineteenth century. A total of 408 million acres had been farmed prior to 1870, and in the next 30 years, an additional 431 million acres were newly cultivated. As the scale of U.S. agriculture dramatically increased, so did its complexity, with locally oriented farmers later engaged in an international system of storing, shipping, and selling, engendered by increased mechanization, cash crops, and stock trading in commodities.

At the onset of these developments, the most significant role was played by the largest farming enterprises. Heralding increased mechanization, greater crop specialization, and a trend toward farming on a large scale, the 40,000-acre or more farms were run with military efficiency. The pace of mechanization was so rapid and extended into so many areas of farming technology that in 1860 alone, the U.S. Patent Office issued new patents for corn shellers, corn huskers, corn cultivators, corn-shock binders, cornstalk shocking machines, cornstalk cutters, corn cleaners, corn and cob crushers, seed drills, corn harvesters, rotary harrows, corn and cob mills, smut machines, and hundreds of corn planters.

The types of plows used since the earliest development of agriculture proved to be unsuitable in dense, heavy prairie, so new designs were essential. A first step came in the form of an adaptation of Jethro Wood's 1814 iron plow, a "prairie breaker" that was very heavy, clogged easily, and moved slowly, even when pulled by a team of oxen. In 1837, a blacksmith in Grand Detour, Illinois, developed the first "singing plow" by combining a wrought iron moldboard with a steel share scavenged from a broken band saw, enabling a far more thorough and clog-free scouring of the prairie. By the 1850s, this blacksmith was manufacturing approximately 10,000 examples of his invention annually at his mass-production plant in Moline, Illinois.

But better plows alone were not sufficient for all the needs of American farmers during the rapid escalation of agriculture in the late nineteenth century. Other key developments included design improvements for tractors, harrows, corn planters, and combine harvesters.

Though Hart and Parr Charles were responsible for pioneering the gasoline tractor in 1901, most American farmers were unable to afford the new machine until the advent of Henry Ford's Fordson tractor in 1917, priced at $397. A critical new development came seven years later with International Harvester's Farmall tractor, a highly versatile machine due to its innovative addition of removable attachments.

During the nineteenth century, harrows rapidly became stronger and more complex. Before the introduction of the tractor, these had to be dragged by animals. The first designs of hoes and brush harrows were outmoded in the 1840s by the Geddes, a hinged triangular construction of wood with teeth made of iron, which, in turn, was outmoded several decades later by an all iron and steel model. This design was later outmoded by a harrow called the Nishwitz rotary disk harrow, which through rollers or clod-crushers, sifted and tamped down the soil.

The planting of corn was both time-consuming and inaccurate until technological advances permitted the mechanization of the planting and the measuring involved as well. In Galesburg, Illinois, in the 1850s, George W. Brown pioneered a semi-mechanized method of corn planting with a horse-drawn vehicle that dropped seed by hand. Next, shoes or "furrow openers" were added to the front of the vehicle for better preparation of the soil, and the seed-dropping mechanism was refined, permitting vehicle operators to divide the tasks of driving and navigating. The latter improvement enabled operators to pay closer attention to where the corn was being dropped.

Developments in combine harvesting technology took a slower and more interrupted course than did those of the other forms of farming equipment. The steam-driven reaping and threshing machines introduced in the 1880s were replaced by the versatility of the Farmall tractor. The Second World War delayed the full implementation of the technological advances marked by Allis Chalmers' All-Crop Harvester of 1936, a gleaner equipped with a special corn-head attachment. With the resumption of peace, the versatile and efficient but expensive combines initially took a back seat to the much cheaper picker-sheller machinery. Only with the proliferation of silos and their efficient storage of vast quantities did the diesel-driven combines' capacity for mass harvesting give them an unbeatable advantage.

Based on the improving health of the farm sector of the U.S. economy, the farm equipment industry experienced a turnaround in the 1990s. Value of shipments in 1992 bottomed out at $7.2 billion before climbing to $14.0 billion in 1997, with continued increases expected. Between 1996 and 1997, value of shipments increased by 7.5 percent. Tractor sales for the first three quarters of 1998 were 13 percent higher than the same period in 1997; increases in combine sales were particularly dramatic--41 percent between the first five months of 1998 and the same period in 1997.

The industry turned another corner in 1999, as sales of farm equipment appeared to have reached a maximum. Evidence of a saturated market was reflected in a report from major manufacturers Deere and Co. and Case Corporation that forecasted a 35 percent drop in North American demand for large-scale agricultural equipment in 1999 and an 8 to 10 percent drop globally. Another study by the Food and Agricultural Policy Research Institute suggested that while the early 2000s would reflect decreasing demand and increased supply for farm products, the overall outlook for the first decade of the twenty-first century was positive.

At the same time, the number of farms decreased as the size of those farms increased, further pushing the market for farm machinery. In 1999, 80 percent of farms had fewer than 500 acres, but those farms produced only 20 percent of total U.S. output, making larger corporate farm businesses the most important market for makers of farm equipment.

The U.S. Department of Labor saw positive signs for the agricultural equipment industry into the late 1990s, noting that farmers had generally recovered from the losses and excessive debts incurred during the 1980s. Farmers were expected to replace machinery that they had been unable to replace when times were hardest, and to invest in new machinery, taking advantage of improvements brought about by advanced technology. Indicative of this trend was 1997's 4 percent first quarter increase in non-real estate loans. In addition, farm inputs, equipment, and machinery accounted for 50 percent of the increase in farm loan value in 1996, which rose to $2.3 billion, up 3.2 percent from 1995.

Federal legislation continued to play a key role in the farm and farm equipment industry. A major development occurred with the passage of the Federal Agriculture Improvement and Reform Act of 1996. The act ended the federal requirement that farmers leave idle a portion of their land in order to receive government income support, meaning that farmers became free to plant on additional land without losing an important source of income--both positive indicators for farm equipment manufacturers. Other important legislation for the industry included the Farm Security and Rural Investment Act of 2002 and the Food, Conservation, and Energy Act of 2008.

Other government restrictions on the farm equipment industry came from the Environmental Protection Agency (EPA). The EPA set standards concerning exhaust emissions for farm equipment and machinery based on horsepower. Clean air legislation creating new diesel fuel standards was seen as making viable an otherwise too expensive diesel blend containing soy oil and leading to a decline in carbon monoxide and hydrocarbon emissions. From the point of view of farmers, this cleaner fuel was not believed to have consequences for torque output, even if it did lead to small reductions in horsepower.

Current Conditions

Factors affecting the U.S. economy have generally played a significant role in the organization of this industry. Globalization and consolidation allowed industry leaders to maintain growth or minimize losses in a poor domestic market. Other factors important to the stability of this industry included government subsidies of U.S. farms, relationships with equipment dealers, changing environmental emissions regulations, and the availability of raw materials. Overall, the industry remained flat during the 2000s due to the generally weak economic conditions of farming.

By 2010, the farm equipment sector of the manufacturing industry was dealing with the effects of the sharpU.S. economic downturn. According to Charlie O'Brien of the Association of Equipment Manufacturers (AEM), "The recession reached the agricultural sector in 2009, and the drop in equipment sales in most categories is attributed to a combination of the fall in commodity prices, significant drops in net farm income, the tightening of credit throughout the ag equipment distribution channel, and the overall reduction in economic confidence." However, according to the USDA, farm income was expected to be up 11.8 percent in 2010, which was expected to boost sales of farm equipment. Types of machines most likely to see increased sales into the 2010s were planters and self-propelled sprayers, according to the AEM. Growth was also expected in sales of four-wheel-drive and 100+ horsepower two-wheel-drive tractors.

Industry Leaders

This industry is highly consolidated, with just a few companies manufacturing most of the products. Deere & Company of Moline, Illinois, manufactured the John Deere brand through its agricultural and turf division and also had two other divisions: construction and forestry. Although the company employed 51,300 people around the world, most of its sales in the late 2000s came from North America, where it had more than 2,500 distribution branches.

Deere was an industry leader for years, but the company faced some perilous challenges in the 1990s. The company posted a net loss of $902 million in 1993 then turned the business around within a year to record its most profitable fiscal year ever. Acquisitions were a part of Deere's growth strategy. In late 1999, for example, Deere bought up 49 percent of Cameco Industries, a farm equipment manufacturer with sales of $100 million the previous year. Deere was hard hit by the downturn of the market in 1999 and, reacting to declines in demand, began production shutdowns and a voluntary early-retirement program in its agricultural and turf division. By 2009, this division accounted for $18.1 billion in annual sales.

Another major company in the industry was CNH Global. Although the company is based in the Netherlands, it has significant business investments in the United States and manufactures under brand names Case, Case IH, Kobelco, and New Holland in 13 U.S. production plants. CNH's prominence resulted in part from its purchase of former industry leader Case Corp. in 1999. In 1998, Case Corp. of Racine, Wisconsin, ranked as North America's second largest farm machinery operation and as the world's largest small- and medium-size construction equipment manufacturer. In the second-quarter of 1999, however, Case announced a 71 percent drop in net income. CNH did not suffer as much from the downturn in the market; although it shut down its Nebraska plant and cut production of some equipment by up to 17 percent, it also spent aggressively toward future growth, with a $13 million plant renovation project and acquisitions of Case and Orenstein & Koppel. In 2009, CNH manufactured 540 models of farm equipment and reported annual sales of $13.7 billion with 28,450 employees.

AGCO Corp., based in Duluth, Georgia, marketed its diversified agricultural products worldwide under the brand names of Massey Ferguson and Challenger, among others. Under the guidance and leadership of CEO Robert J. Ratliff, AGCO became the Cinderella of the farm machinery industry. Ratliff transformed a relatively small and unprofitable $200 million company into a $2 billion industry leader. Ratliff launched the changeover by expanding the company's narrow product line, thereby increasing its worldwide tractor market share to 20 percent. To help build and reinforce the AGCO empire, Ratliff purchased the domestic and international operations of Massey-Ferguson in 1993 and 1994, respectively. By 2009, 80 percent of the firm's sales were from outside the United States.

To cope with the disappointment of the market's late 1990s downturn, AGCO implemented extensive cost-cutting measures. The firm cut 1,400 jobs in the United States and laid off hundreds of workers, closing plants in Missouri, Ohio, Texas, and Minnesota. By 2009, however, the company was reporting annual sales of $6.6 billion with 14,500 employees.

America and the World

The United States exported almost $8 billion worth of farm equipment in 2009, a 23 percent decrease from 2008. According to AEM president Dennis Slater, "Prior to 2009, the export market for agricultural equipment had been expanding with double-digit increases since 2004. Current economic conditions, including limited access to credit, remain challenging in many countries and have led to a slowdown in business." A majority of U.S. farm equipment exports went to Europe, with exports totaling $2.3 billion, 42 percent less than 2008 figures. Exports to other regions also declined: by 31 percent in South America ($611 million), by 20 percent in Central America ($646 million), and by 19 percent in Asia ($643 million). Canada was the top export market with $2.7 billion in sales, down only one percent. Rounding out the top five export markets were Australia, Mexico, Germany, and France.

Industry leaders sought to increase their footprint abroad through acquisitions, joint ventures, and contract manufacturing. AGCO purchased Xaver Fendt GmbH & Co., the German manufacturer of the Fendt tractor, making AGCO number one in Germany and number two in France, when ranked by market share. Deere held contracts with companies in Italy, Spain, France, and the Czech Republic, enabling the companies to reach markets in Latin America, Australia, the Pacific Rim, South Africa, and South America. Deere also had a joint venture with the Hattat Group of Turkey for the production of tractors and was expanding its market in India in 2010. Case bought its way into a majority stake in Austrian equipment manufacturer Steyr, providing the company entry into Eastern European markets.

Research and Technology

Throughout the 2000s, the industry has made some technological breakthroughs that substantially reduced producers' dependence on manual laborers. An example was a pepper picker for harvesting delicate pepper varieties without damaging the vegetables. This diesel-powered harvester included a liquid-cooled diesel engine and rated 86.9 horsepower at 2200 rpm. The pepper picker had the potential of harvesting as much as 150 manual pickers, which saved farmers considerable labor costs.

Other advances in technology in the industry involved the incorporation of hi-tech devices and services into farm equipment. For example, as noted by Steve Savage in Energy Conservation, Sustainability, Technology, "a progressive farmer will typically be working in an enclosed, air-conditioned cab with surround sound, a cell phone, and an Internet connection for tracking commodity futures or catching up on email." Some combines, tractors, and sprayers had an "auto-steer" feature, whereby a GPS system was used to make sure the equipment went down precisely defined rows, to eliminate any overlap that would result in the waste of time or fuel. In addition, robotics was expected to increase its presence in the farm equipment industry. According to Tony Stentz of Carnegie Mellon University's National Robotics Engineering Center, by the mid- to late 2010s, "we'll see robots out in the field....And they'll lose their novelty. To the farmers, it'll just be another tractor, with no one in the cab."

In the early 2010s, manufacturers of farm equipment were preparing to meet stringent new EPA regulations regarding air pollution emitted by off-road vehicle engines such as those used in tractors and combines. The standards were adopted in "tiers." Tier 1 regulations set limits on particulate matter and oxides of nitrogen emissions, whereas Tier 4 regulations required the air coming out of the exhaust to be virtually as clean as the air going into the engine. The first stage of Tier 4 was scheduled to go into effect in 2011 and the second stage in 2014. According to Farm Industry News, the new regulations required "the most drastic reduction in diesel engine emissions that EPA has ever called for."

Farm equipment manufacturers were required to find ways to meet the new emission standards. According to Farm Industry News, there were two ways manufacturers could do this. John Deere used the Exhaust Gas Recirculation (EGR) method, whereby exhaust gas is cooled and mixed with incoming fresh air. This lowers the engine's peak combustion temperature and thus reduces the oxides of nitrogen that are emitted. In addition, particulates are caught in an exhaust filter and oxidized into nitrogen gas and carbon dioxide before being expelled through the exhaust pipe. The other method, called Selective Catalytic Reduction (SCR) and used by tractor makers AGCO, Case International, and New Holland, sprays exhaust with a special solution of chemical urea and purified water before routing it through a catalytic chamber, where it is broken down into water vapor and nitrogen before being expelled. The SCR method required less fuel and accommodated wider fuel compatibility, whereas EGR was promoted as more user-friendly and easier to maintain.

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