The forecast is fair to partly cloudy. (Outlook 2003).

Predictions are a dangerous business. When they're correct, popular wisdom says that, "any fool could have seen it coming." When they're wrong, everyone says that, "only an idiot" could have come up with such a conclusion.

As such, those people and organizations whose job it is to predict the future must always tread lightly and offer caveats to the marketplace. In today's litigious society it is not only wise, but also required to offer statements indicating that you could, of course be wrong.

Take the stock market, for example. if predicting future performance was easy (or even remotely accurate) there would be a lot more happy, rich people today than there are. For example, ever since the summer of 2001, the pundits have claimed non-stop that the bear market was about over and the economic indicators were sound, so an economic turnaround was just around the corner. The problem, of course, is that no one was able to specify exactly which corner, and the market has continued its stubbornly bearish ways.

Or your local weatherman. Never mind that forecasting the path and activity of shifting air masses with total accuracy is intrinsically a low percentage prospect. But when the weather is good, people thank the heavens. When the weather is bad they blame the weatherman on Channel 7.

On the positive side, taking stock of your environment, projecting results and making contingency plans are worthwhile efforts for everyone. I once attended a business seminar where the speaker advocated that every businessperson should spend something like a half an hour per day thinking of nothing but the future of his/her business.

Forecasting is useful in that we gain insight into the thinking of the experts in the field. This is how we all get smarter. But it would be wrong to take the predictions of a few "experts" and build your entire future around them.

One last note before we reveal our 2003 Farm Machinery Outlook. Some reports will indicate a projected percentage of increase or decrease. Remember that in cases like the AEM State of the Ag Industry Outlook, the apparent specificity of a "5.1%" increase is an illusion. It is merely the average of three "no-changes", two projected three percent increases, a projected ten percent increase and a 20% projected increase. So while it looks as though there is a highly sophisticated process at work, it is simply the magic of averaging estimates.

This is not to downplay the value of these projections. Far from it, in fact. It is simply to reinforce the idea that splitting hairs over the difference between a 5.1% and 6.5% projection is folly. The overall trend is the key thing to watch.

And let's not forget that a sizeable increase in sales over a year where there were sizeable declines might mean that there are still fewer that will be sold this year than two years previous. The second key to reading statistics is to understand the way that numbers can appear to show something they do not.

With the previous warnings firmly in mind, let's take a look at how the ag equipment industry looks to shape up over the course of the year.

AEM Outlook

Most manufacturers do not expect 2003 to be a year to remember. Not great. Not horrible. Nothing to make it stand out when viewed from some time in the future... or the present for that matter.

According to the AEM (Association of Equipment Manufacturers), "U.S. retail sales of farm tractors and self-propelled combines are expected to grow in 2003, while the outlook is mixed for farm field and farmstead-type equipment."

The AEM report cites predictions of a 0.4% increase in total tractor sales compared with the 0.8% increase in 2002. The real difference between 2002 and 2003 projections though, is not the numbers themselves, but rather what those numbers represent.

In 2003, 4WD tractors are expected to lead the way with a projected growth in sales of 7.6% following a 21.7% decline in 2002. And 2WD tractors of 100+ hp are expected to grow by 5.7% after an 18.6% drop in 2002.

In a turnaround in the other direction, under 40 hp tractor sales are expected to decline by 0.8% after a 6.3% increase in '02. The 40-100 hp market is predicted to remain relatively flat, with a 0.6% increase following a 0.9% growth last year.

According to AEM's research, self-propelled combines will achieve the greatest turnabout. They project out at a 14.4% increase following last year's dismal 2 1.3% decline.

Additional predicted growth markets for 2003 include: parts (+4.8%); planters (+3.4%); windrowers/swathers (+3.1%); mower conditioners (+2.8%); field cultivators (+2.3%); loaders (+2.0%) and round balers (+0.2%).

The following market segments are expecting declines in sales during 2003: chisel plows (-3.7%); air seeders/air drills (-3.6%); forage harvestors (-1.2%); disk harrows (-1.4%); and rectangular balers (-1.2%).

Farm Bill Implications

Obviously, in order for sales of ag manufacturing products to improve, it is necessary that farmers have the wherewithal to buy. Machinery sales is a complicated equation involving a whole series of issues, including: planting intentions, harvest success, domestic and worldwide demand, income received vs. input costs, cost and availability of money, and degree of need.

In general, low interest rates, a loose money supply and a farm bill that provides higher levels of direct payment to farmers should provide a positive impact on this year's sales results, and continue to do so over the next several years, baring catastrophic circumstances.

After a number of lean years, however, it remains to be seen whether or not farmers will use this added buying power to purchase new equipment right away. If they choose to "make do" with existing equipment, or purchase from the large stock of used equipment on the market until they "catch up financially" a little bit, that could delay or alter some of the positive projections. But ultimately, equipment must be replaced, and producers can only wait so long to buy.

Ultimately, it seems the 2002-2007 Farm Bill should put some kind of a floor under the equipment market.

Deere, CNH and AGCO

The majors agree on one thing...that sales in the ag sector are likely to be pretty flat for this year, but Deere and AGGO are hoping for a slight upswing in sales by the end of the year. CNH does not mention such a possibility in their annual report, but that could be just a matter of semantics.

The question is, how does one reconcile those predictions with the AEM forecast of greater sales in the high horsepower tractor market that the majors traditionally dominate? Is this discrepancy the result of lagging sales in the smaller horsepower lines bringing down the company average? Or that the majors' implement lines will not carry their weight? Is it a sign that other tractor manufacturers are making greater inroads on share-of-market? Or does this discrepancy simply reveal that different groups with different methodologies will sometimes show different results? It should prove interesting to watch how this plays out.

Engine Growth

In order to sell tractors, you've got to build engines. So one key indicator for tractor and combine sales should be projections from the diesel engine manufacturers.

Diesel Progress magazine offered a more optimistic look at 2003 than did either AEM or the majors. They foresee a five percent growth in tractor sales... much greater than AEM, Deere, CNH or AGGO. Their predictions for about a 15% increase in combine sales fall right in line with other predictions, however.

Summary

2003 seems to promise no "hold-onto-your-hats" market swings. For better or worse, most indicators show a steady, unspectacular ride along flat terrain, with the possibility of a slight rise late in the year.

The good news is that there should be enough gainers to offset the losers and give dealers across the continent an opportunity to retrench and plan for the future without the need of reacting to a whipsaw market.

The one "fly in the ointment" for manufacturers that no one wants to talk about is the issue of a potential glut in the used tractor market. This, of course, could prove an albatross around the necks of dealers, or it could provide an offsetting alternative to new product sales. Selling used equipment is another way to make a buck-it's just a little harder work.

Could this be the year that offers a little ray of sunshine to brighten what has been a bit of a down market? It depends on how much sunshine you need.

The weather report is fair to partly cloudy with intermittent rain and sun...unless we're wrong, of course.