Farmers aren’t buying many tractors, but autonomy's here to stay

Tractors and other farm equipment are piling up at dealer sales lots due to falling crop prices and continued high interest rates that have kept farmers from making purchases.

When some of the newest technologies like fully autonomous tractors from John Deere cost $500,000 apiece or more, even modern leasing programs and other financing schemes cannot ease the concerns over falling crop prices, now at three-year lows for corn and soy.

In April, research firm Sandhills Global reported inventory levels of high-horsepower tractors in the US surged by 107% over April 2023. Reuters recently reported on 10 farm equipment dealers, mostly in the Midwest, seeing fewer purchases.

A big question facing John Deere and its competitors, and even other heavy equipment manufacturers, is whether cutting equipment production might eventually lead to reductions in R&D budgets that have yielded significant advances in autonomous technology. Deere’s competitors include Case IH, Fendt and Autonomous Tractor Corp.

Deere would not comment on its future prospects because its next earnings report is coming up on Thursday, May 16. But in its February earnings call, Deere executives said the company intends to cut equipment production in 2024. At the time, it said net income for fiscal 2024 will range from $7.5 billion to $7.75 billion, below a prior forecast of $7.75 billion to $8.25 billion. “We’re exercising good caution,” said CFO Joshua Jepsen.   

Economists view Deere as a barometer of the global economy. As such, the company added in its February call that large agricultural equipment sales are expected to decline 20% this year.

Two technology analysts told Fierce Electronics that significant reductions in autonomous R&D probably won’t happen unless sales continue downward for an extended period.

“No, I don’t think the slowdown is going to significantly impact R&D, especially for autonomous tractors, rigs and autonomous attachments,” said Jim McGregor, principal analyst at Tirias Research. “Autonomy is almost a key requirement going forward because of labor issues facing farmers.”

Companies like John Deere are “already so far down the road, and autonomous capabilities are such a need in the industry from ag to mining,” McGregor added. “The focus on autonomy is key for them, as well as alternative power solutions like hydrogen. So I would not expect that it’s going to significantly impact R&D, even if it does impact shipments.”

McGregor said it takes five years or longer to get new technology into the market, which means R&D budgets are set on a long-term time frame. “I don’t see any slowdown there. I continue to think areas like agriculture are going to continue to lead with advancements in AI and autonomous control.”

Jack Gold, founding analyst at J. Gold Associates, told Fierce that if sales are down for an extended period, companies do cut back on investments partly to please investors who don’t like too much overhead as a percentage of sales when sales are down.

However, he added, “there will be some investment in R&D, as those companies that don’t invest in future product will not be around longer term.” As industries move into software defined products, it is paramount to invest in process improvements and new ways of operating. There is also much more leasing going on in the high- end expensive equipment market where companies like Deere charge for services farmers need, rather than buying products outright.

What’s happening to heavy equipment manufacturers is similar to how companies transitioned from buying high end data center systems, then moved to the public cloud, paying as they needed for compute time. “The same has affected many industries and it’s likely the same will be true in the ag space,” he said.

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