Sales of irrigation equipment are booming in 2012, and experts say the ongoing summer drought may inspire further demand among growers.
Drought-stricken growers in the Midwest see the value of irrigation machinery now that reduced yields have driven up crop prices, said Brent Mecham, industry development director for the Irrigation Association trade group.
"You would be making a lot of money right now," he said.
Beyond immediate weather considerations, the irrigation market has a lot of room to expand over the long term as growers upgrade irrigation methods, said Mecham.
"The potential to grow is still very strong," he said. "It's not at saturation by any means."
Despite the irrigation industry's robust sales, flood irrigation remains the dominant method among growers, he said. "Surface or flood irrigation is inexpensive, but it's the least efficient."
Crop prices have traditionally been so low that many growers couldn't justify buying pressurized irrigation equipment, Mecham said.
With crops becoming more valuable in recent years and water supplies getting steadily scarcer, more advanced irrigation technology is making financial sense, he said.
Lenders may also persuade growers to invest in such equipment to prevent crop failure, Mecham said. "I think it will become a risk aversion requirement down the road from the banking point of view."
Sales of Valley irrigation equipment have surged nearly 17 percent during the first half of 2012, to $390 million, according to Valmont Industries, the brand's owner.
"The external environment worldwide for agriculture is as strong as we've seen in a long time," said Mogens Bay, Valmont's CEO, during a recent conference call with investors.
Rival manufacturer Lindsay Corp., which makes Zimmatic irrigation equipment, has also seen strongly increasing sales.
Irrigation sector revenues have climbed 32 percent, to $367 million, during the first three quarters of the company's most recent fiscal year.
Reinke, a privately held manufacturer, does not disclose its revenue figures but demand for the company's products has followed the same trend.
"Our system sales are up again this year fairly significantly," said Tim Goldhammer, vice president of marketing for Reinke.
With the severe drought in the Midwest, growers who have traditionally relied on rain for irrigation may come to see center pivots as an insurance policy, he said.
"There's large parts of the country where guys who have never seen the need for irrigation equipment are now starting to reconsider," Goldhammer said.
The drought's effects on irrigation sales will likely become visible in autumn or next year, rather than immediately, said Bay of Valmont Industries. "This is the time growers are worried about growing a crop, not putting in new equipment."
SOURCE: Mateusz Perkowski, Capital Press