The U.S. farm machinery and equipment market contracted further in 2025, with tractor and combine sales falling sharply amid weak grain prices, lower farm incomes, elevated borrowing costs and new federal tariffs that added hundreds of millions of dollars in expenses for major manufacturers-developments that matter because they directly affect farm capital investment, input costs and the broader rural supply chain heading into 2026.

After several years of expansion during the post-pandemic commodity boom, the sector has shifted into a prolonged correction. For producers weighing capital expenditures, and for equipment dealers managing inventories and financing, the downturn signals tighter margins and a more cautious outlook across U.S. agriculture.

The Creighton University Farm Equipment Sales Index, a closely watched indicator based on bank CEOs in key agricultural states, shows the depth of the slowdown. The index has remained below the growth-neutral threshold of 50 since October 2023. In February 2026, it dropped to 16.7, reflecting persistent contraction in farm equipment demand.

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National retail data reinforces the trend. After peaking in 2021 at 317,944 tractors and 6,278 combines sold, the market began diverging in 2022 and then broadly declining. By 2024, tractor sales had fallen to 217,279 units and combine sales to 5,556 units.

Preliminary 2025 figures show continued deterioration. U.S. tractor sales declined another 9.86% to 195,857 units, while combine sales plunged 35.58% to just 3,579 units-marking one of the steepest annual drops in recent history.

Dealer sentiment mirrors the data. According to the 2026 Dealer Business Outlook & Trends Report, 67.5% of dealers reported declines of at least 2% in new equipment sales during 2025. Used equipment also weakened, with 46.3% reporting similar declines. While expectations for 2026 are slightly less negative, a significant share of dealers still forecast further contraction.

The slowdown is closely tied to lower commodity prices, especially in corn and soybeans, which have compressed margins and reduced farm cash flow. Combined with higher interest rates and rising input costs, producers are delaying machinery upgrades, even as precision agriculture technologies continue to evolve.

Manufacturers have responded by scaling back production to better align with cooling demand. U.S. Census Bureau data show that total farm machinery inventories peaked at $7.23 billion in October 2022. By December 2025, inventories had fallen to $5.72 billion-a reduction of $1.51 billion, or nearly 21%.

However, recent months have shown a modest uptick in inventory values, suggesting the adjustment process is not yet complete.

In the used market, inventories of tractors declined for eight consecutive months through December 2025, falling 15.5% year-over-year. Asking prices for used tractors have also trended downward for 11 straight months, with a 5.85% annual decline in December.

Combine markets present a mixed picture. While month-over-month increases were recorded in used combine inventories and auction values late in 2025, year-over-year figures still show inventory declines and only modest price adjustments. For producers, this creates selective buying opportunities but also underscores ongoing volatility in the secondary equipment market.

Despite falling sales volumes, machinery prices remain historically high. The USDA's National Agricultural Statistics Service reports that the Machinery Prices Paid index rose 0.8% year-over-year in December 2025.

Prices surged during the COVID-19 period due to supply chain disruptions, steel shortages and semiconductor constraints. Strong grain prices and robust farm incomes at the time supported higher equipment demand.

Today, however, that support has weakened. While price increases have leveled off, the cost base remains elevated compared to pre-pandemic levels. For producers managing tight working capital, high equipment prices-combined with expensive credit-continue to delay replacement cycles.

Perhaps the most consequential development in 2025 was the reintroduction of sweeping tariffs. Major manufacturers reported substantial financial impacts.

Deere & Co. disclosed approximately $600 million in tariff-related costs in fiscal year 2025 and projects those costs could double to $1.2 billion in 2026. CNH Industrial's agriculture segment saw adjusted EBIT decline from $1.47 billion in 2024 to $772 million in 2025, citing tariff impacts. AGCO also anticipates a tariff burden of up to $110 million in 2026.

A February 20, 2026 U.S. Supreme Court ruling struck down the administration's use of emergency powers to impose certain tariffs, briefly raising hopes for relief. However, a rapid policy pivot to a new 10% tariff under Section 122, potentially rising to 15%, has reignited trade policy uncertainty.

For the farm machinery sector, tariffs represent more than a manufacturer issue. They ripple through the entire agricultural supply chain, affecting dealer pricing, financing terms and ultimately farmers' capital investment decisions.

The path to recovery hinges on several variables: a rebound in grain prices, improved farm incomes, lower borrowing costs and clearer trade policy direction.

As producers finalize planting decisions and evaluate crop insurance coverage under the current farm bill framework, capital investment will remain cautious. Until commodity markets strengthen and policy volatility eases, the U.S. farm machinery market is likely to face continued headwinds through 2026.