What is happening in the ag equipment sector

March 6, 2025 | Kriss Nelson

Facing a sluggish farm economy, agricultural equipment manufacturers are reducing production and workers are being laid off.

The Association of Equipment Manufacturers (AEM) shared a market update during this week’s Commodity Classic held in Denver.

“Looking at new machinery at Commodity Classic and listening to all of the news breaking right before us there is a lot of attention being paid to the equipment market and some factors causing us to be optimistic and other factors causing us to be less than optimistic,” says Curt Bades, senior vice president for AEM.

Ag equipment market faces disappointing year

Bades says main industry barometers point to sluggish demand with rising inventory levels forcing businesses to slow down production and downsize their operational labor force and capital spending.

“We ended 2024 as a disappointing year,” he says. "Our partners at ICS (Inventory Capital Solutions) Global have a slightly bearish outlook for 2025, and economists discussing the agriculture economy share a similar perspective."

Bades added he doesn’t want to sugarcoat the situation, and the market is experiencing a downturn in cyclical patterns, prompting our interest in monitoring inventory numbers.

The rise in capital expenditure in manufacturing post-pandemic led to a rapid increase in manufacturing output to meet demand. At this time last year, ag equipment manufacturers began rationalizing supply in anticipation of a slowdown due to low commodity prices.

“It is really important when talking farm equipment to talk about capacity,” says Bades. “The supply is very important to meet demand. The last thing we want out here is too much inventory. That is bad for everybody. That is bad for dealers, bad for manufacturers and bad for farmers.”

AEM data show shipments of low horsepower and high horsepower equipment have dropped year over year. Low horsepower inventories build up approached historically high levels as they sell at their slowest.

“During the pandemic, low horsepower tractor sales were on fire. We were selling more equipment than we could produce,” says Bades. “That affected the overall health of the equipment manufacturers and local dealers who were able to take advantage of that market.”

Over the last few years, there has been a decline in the lower horsepower equipment market as the demand seems to have been satisfied.

In 2024, high horsepower tractor sales began decelerating after a replacement cycle in that industry, which Bades says began in 2021.

“The lower horsepower fleet remains relatively young with an anticipated replacement cycle to start in 2028,” he says. “High horsepower replacement cycle began in 2021, and that fleet is becoming increasingly younger, but not yet at its youngest, which could be reached in 2026.”

Impact of ag equipment demand in 2025 is a mixed-bag

According to AEM, a drop in net farm income prediction suggests another drop in equipment sales in 2025 before they potentially recover in 2026.

“There are a lot of factors coming into play looking to 2025 and beyond. What does it take to change the market? Is it low interest rates? Better commodity prices? Is it more certainty? A farm bill? Better weather? The answer to those questions is yes,” says Bades. “All of those things figure into the future of ag equipment and the ag market right now. There is just a lot of uncertainty that is leading to people feeling uncomfortable with capital equipment purchases until we can get rid of that uncertainty is where we are in the market right now.”

Right to Repair

Bades says AEM supports a farmer's ability to repair their own equipment but does not support the modification of the equipment.

“We want to make sure the health and wellbeing of the farmer isn’t sacrificed, that it doesn’t sacrifice anything that influences the equipment’s ability to meet its environmental regulations and where it doesn’t do anything that tampers with that machine,” he says.

Farm equipment and tariffs

Early assessments suggest tariffs and a potential trade war could negatively affect agricultural equipment sales.

“Tariffs are taxes. They are taxes on American companies, American farmers and American workers. They will drive up the cost of making equipment in the United States that will make us less competitive in the global marketplace,” says Kip Eideberg, senior vice president of government and industry relations for AEM. “Tariffs are also inflationary. They will most likely drive up inflation, which is bad news for equipment manufacturers and farmers. We are extremely concerned about tariffs.”

 Eideberg says the United States’ ag equipment industry has a trade surplus with Canada.

“We send about $10 billion worth of goods north of the border, and we import about $3.5 billion,” he says. “For us, 25% tariffs on equipment, attachments, parts and components going into Canada is going to have a significant impact on our bottom line. Canada is our largest market.”

Ag equipment supply chains are not only spread out across North America, but around the world.

“We are an export-dependent industry,” says Eideberg. “If we cannot sell tractors and combines to customers around the world, we aren’t going to be able to continue to expand our manufacturing operations around the United States and hire more Americans. The last round of tariffs significantly increased the cost of making equipment in the United States. The manufacturers try to absorb the cost of increases; some get passed on to our customers, which is not great news for farmers and ranchers considering the headwinds they are facing.”

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