European Ag Equipment Outlook Remains Fairly Positive in February

Sentiment in European farm machinery posted a +26.0 index number for February; farm economics are expected to improve modestly across the European markets.

William Blair Equity Research

Sentiment in European farm machinery posted a +26.0 index number for February following +23.0 in January. Results for the last 12 months were +47.0, 44.1, +38.6, +36.0, +36.2, +30.0, +28.0, +26.0, +20.0, +25.0, +23.0, and +26.0, respectively. The business climate index (CBI) peaked in February last year and has trended lower since then before stabilizing in the 20s, which is still indicative of a healthy economy. William Blair Equity Research believes the market as a whole is pretty stable. Historically, the ups and down in Europe have not been as volatile as other markets in part due to subsidies, which provide stability. Deere and AGCO are guiding the European market to be flat in 2019. 

The livestock sector continues to be strong. Order backlog of ag machinery industry represents a production period of 3.2 months, nearly as high as a year ago. Farm economics are expected to improve modestly across the European markets, driven primarily by favorable wheat prices and more normal crop production. In the February report, 35% of survey participants now expect their business to grow within the next 6 months, versus 36% in the prior month; 16% expect turnover to decrease for the next 6 months, flat versus last month. About 87% of participants evaluate current business conditions as very good, good or satisfying, flat sequentially. The remaining 13% of participants would evaluate their current business conditions as unfavorable to very unfavorable.

Regional updates

The positive outlook for France continues to solidify, while Spain, Switzerland, and Austria show an upward trend. The Czech Republic, the Benelux, and Scandinavian countries remain on the softer side with regard to confidence. Overall German tractor registrations were up 60% year-over-year in January 2019. Low-horsepower (<100 hp) tractor registrations were up 78%. High-horsepower tractor registrations (100 hp+) were up 48%, with tractors in the above-150-hp category up 47%. U.K. tractors increased 33% year-over-year in January. European tractors had an easy comp because of the pre-registration of tractors in December, 2017, ahead of the “Mother Rules” which went into effect in January, 2018, which added more safety features and cost to tractors.

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