The U.S. farm machinery market moved deeper into correction territory in 2025, with both new and used equipment categories facing sustained pressure. After the post pandemic surge of 2020 through 2022, the industry has now entered a prolonged down cycle marked by weaker farm incomes, tighter credit conditions, and elevated price levels relative to historical norms.
The Association of Equipment Manufacturers data confirms the magnitude of the shift. Tractor sales peaked at 317,944 units in 2021 before sliding steadily to 195,857 units in 2025. Combine sales followed a more volatile path, cresting at 7,349 units in 2023 before collapsing to just 3,579 units in 2025. That represents a 35.6 percent annual decline for combines in 2025 alone.
This is not a short term fluctuation. According to the Creighton University Rural Mainstreet Index, the farm equipment sales component has remained below growth neutral for 30 consecutive months. The February 2026 reading of 16.7 signals deep contraction across the agricultural heartland.
From a market cycle perspective, the 2020 to 2022 boom pulled forward a significant amount of demand. Strong grain prices, pandemic stimulus liquidity, and supply chain disruptions created a sense of urgency among producers. Many large purchases that might have been spread over several years were accelerated. The industry is now absorbing that demand vacuum.
Dealer Outlook Signals Continued Weakness into 2026
Survey data from the 2026 Dealer Business Outlook & Trends Report reinforces this narrative. Roughly two thirds of dealers reported at least a 2 percent drop in new equipment sales in 2025. Nearly half reported similar declines in used equipment.
More telling is forward guidance. Over 44 percent of dealers expect further declines in new equipment sales in 2026. While that figure is smaller than 2025 expectations, it does not indicate recovery. It suggests stabilization at lower volumes rather than a rebound.
Used inventories are tightening in tractors but remain volatile in combines. Asking prices for used tractors have trended lower for nearly a year, reflecting cautious buyer sentiment. Auction values have softened year over year, even if occasional monthly upticks appear. In short, liquidity exists, but buyers are disciplined and selective.
Manufacturer Production Cuts and Inventory Realignment
On the manufacturing side, inventory management has become a priority. According to U.S. Census Bureau data tracked through FRED, total farm machinery inventories peaked at $7.23 billion in October 2022 and declined to $5.72 billion by December 2025. That 20.8 percent reduction reflects deliberate production cuts designed to align supply with reduced dealer throughput.
However, inventory values have shown recent stabilization. This suggests that while production has been curtailed, unit pricing remains structurally elevated compared to pre 2020 levels. The USDA machinery price index still shows year over year increases, even if the rate of growth has slowed.
The critical issue is affordability. Grain prices have normalized from post war highs, input costs remain elevated, and interest rates are significantly higher than during the expansion phase. For capital intensive equipment purchases, financing costs materially alter return on investment calculations.
Tariffs Amplify Margin Pressure Across OEMs
Beyond cyclical forces, 2025 introduced a major structural shock. Sweeping tariffs imposed under emergency authority placed direct cost burdens on manufacturers.
Deere & Company disclosed roughly $600 million in tariff related costs during fiscal 2025 and projects that burden to double to approximately $1.2 billion in 2026.
CNH Industrial N.V. reported its agriculture segment adjusted EBIT falling from $1.47 billion in 2024 to $772 million in 2025, with tariffs cited as a major factor.
AGCO Corporation expects up to $110 million in tariff impact in 2026, compared to $40 million in 2025.
While the February 2026 Supreme Court ruling temporarily struck down certain emergency based tariffs, the rapid policy pivot to new levies under Section 122 has preserved uncertainty. For capital goods industries operating on multi quarter production planning cycles, uncertainty itself becomes a cost variable.
Manufacturers must decide whether to absorb costs, pass them through to farmers, or adjust sourcing strategies. In a demand constrained market, pricing power is limited. That compresses margins and pressures earnings.
Structural Versus Cyclical Drivers Behind the Downturn
In my assessment, the current downturn reflects both cyclical normalization and structural adjustment.
Cyclically, we are seeing classic post boom digestion. Equipment fleets were refreshed aggressively between 2020 and 2022. Replacement cycles are now extended.
Structurally, higher interest rates have reset the economics of large capital purchases. At the same time, geopolitical trade tensions have increased input cost volatility. Even if tariffs are modified, the perception of policy instability will influence boardroom decisions.
A meaningful recovery likely requires four aligned conditions: stronger grain prices, improved farm profitability, lower borrowing costs, and a clearer long term trade framework. Without those elements, the market may stabilize but remain subdued.
Deere & Company Market Position
Deere & Company remains the dominant player in North American large agricultural equipment. The company generated tens of billions in annual revenue in recent fiscal years and maintains leading market share in high horsepower tractors and combines in the United States. Its scale, vertically integrated manufacturing footprint, and strong dealer network provide resilience during downturns.
However, even a market leader is not immune to macro pressure. With projected tariff exposure reaching $1.2 billion in fiscal 2026 and industry wide volume declines, Deere’s near term performance will depend on disciplined production control, cost management, and preserving pricing integrity in a soft demand environment.
