Tractor sales are sinking. Farm equipment stocks aren’t.

Farm equipment stocks are rallying in the face of one of the worst markets for tractors and combines in years, a sign investors think there is nowhere to go but up.

Shares of Deere have risen 48% this year to close Friday at $690.46, while shares of CNH Industrial have climbed 42% since the beginning of the year, closing at $13.09. Shares of AGCO have risen 13%, closing at $118.02. The S&P 500 has gained 13% over the same period.

 

But manufacturers have sold off inventories and cut production to meet weaker demand, raising expectations for an upturn after a three-year slump.

“The ag market is not like it’s robust or turned around, but it’s just kind of stabilized,” said Ted Jackson, a senior research analyst at Northland Capital Markets.

Jackson pointed to several factors hurting U.S. row-crop farmers: lower crop prices following unusually strong harvests, trade pressures and increased competition from countries like Brazil.

Higher operating costs and borrowing expenses have made replacing equipment more difficult, giving farmers reason to hold onto older tractors and combines.

U.S. farm tractor sales through August have fallen just over 30% from the same period in 2023, while self-propelled combine sales have plunged just under 60%, according to the Association of Equipment Manufacturers.

The downturn has hit manufacturers’ bottom lines. Deere’s operating profit in its production and precision agriculture business fell 39%, while its second-quarter net income fell 2%. AGCO’s quarterly earnings per share dropped by roughly three-quarters from a year earlier to $1.08, while CNH’s net income fell 35% to $141 million.

The depth of the downturn has forced manufacturers to adjust. They have scaled back production and sold off excess inventory to bring supply closer to weakened demand.

AGCO cut North American dealer inventories 7% in the second quarter as it brought production closer to retail demand. Deere has brought new inventories of high-horsepower tractors and combines down by more than half from their mid-2024 peak and plans to keep production in line with retail demand. Inventories of model-year 2023 and 2024 used high-horsepower tractors have also fallen nearly 40% from a year earlier.

 

CNH plans to produce 4% below retail demand, leaving room to increase production when demand begins to normalize.

Investors are already pricing a recovery into farm equipment stocks, pushing shares higher before the improvement has even reached manufacturers’ earnings.

“The market always discounts quicker than the actual earnings come through,” said Stephen Volkmann, an equities analyst at Jefferies.

That bet rests on expectations that the downturn has hit its bottom.

“Market performance appears to reflect investor expectations that 2026 may represent the bottom of the agricultural cycle, with the potential for a recovery beginning in 2027,” said Benj Bahr, a portfolio manager at First Eagle Investments.

Some investors are looking past depressed earnings when deciding whether to buy.

“I am not betting on a recovery per se but I am expecting a recovery,” said Charlie Huggins, a retail investor who holds Deere and AGCO. “I based my purchases on what I believe to be reasonable cycle-average revenue and earnings performance.”

But bringing supply in line with weak demand may not be enough to sustain the rally. Stronger equipment purchases from farmers are needed to turn the balance into growth.

The bet now heads into 2027. Manufacturers will enter the year with leaner inventories and production closer to retail demand, positioning them to increase output if farmers begin buying again. But high operating costs, financing pressure and weak crop economics continue to affect farmers.

“I’d like to see sustained improvement in equipment purchases from the farmer’s side before calling it a true recovery,” said Jon Rossi, managing director of Digital Iron Group.