By Gregg Wartgow, Special to the Association of Equipment Manufacturers (AEM) --
Stubbornly high input cost and increased market and policy uncertainty have put a bit of a damper on this year’s recovery in the agriculture and construction industries. Nonetheless, farmers and contractors are looking to finish 2026 on solid footing, amid growing signs of stabilization and continued opportunities for growth in 2027.
In the agriculture sector, rising cost of production and below break-even commodity prices have fueled six straight years of financial losses for row crop farmers. Recent volatility in the fuel and fertilizer markets has added to farmer uncertainty as well.
“All of this has created significant headwinds for equipment demand,” said AEM Senior Director of Business Intelligence Al Melhim. Melhim remains hopeful, however, that the ag equipment market has reached the bottom.
“The market may be transitioning from rapid contraction to stabilization,” he added.
In the construction sector, global output is expected to grow 0.8% this year, a downgrade from the 2.32% expansion forecasted at the beginning of the year. Stronger growth rates are expected in coming years, however, as a 2.8% expansion is anticipated in 2027 followed by 3.7% per year from 2028-2030.
Melhim was joined by Tom Hopgood, a construction economist for AEM member company GlobalData, to present AEM’s Business Intelligence Q3 Equipment Market Update webinar on Aug. 6. The two discussed the key factors impacting the ag and construction markets, and how those impacts are influencing equipment demand.
Gain unprecedented access to a comprehensive, detailed, and data-driven outlook on the agriculture and construction industries at the final quarterly Equipment Market Update webinar of 2026. AEM members are encouraged to sign up for the Nov. 5, 2026 live event by visiting the official webpage.
Ag At-a-Glance
Increased government assistance has not been enough to offset crop farmers’ production losses over the past year. Tariffs have exacerbated the problem, collectively imposing roughly $2.6 billion in additional costs from February 2025 through July 2026.
“We’ve seen higher effective tariff rates across virtually all major agriculture inputs, including machinery,” Melhim said, adding that there has been an additional $1.5 billion in cost for machinery alone.
While $2.6 billion may be a fraction of total farm expenditures in the U.S., farmers are still feeling the sting.
“It comes at a very challenging time when crop margins are already under significant pressure,” Melhim said.
The average debt-to-asset ratio is nearing 14% for American farmers, the highest level seen over the past two decades. The debt service ratio has also climbed to its highest level in the past 20 years (roughly 0.28). The bankruptcy rate has also been climbing since 2022.
One bright spot in the ag industry has been the livestock sector.
“Livestock prices have risen much more strongly, driven mostly by strong meat demand and the fact that there has been the smallest herd ever,” Melhim said. “Other factors have included a reduction in imports and cheap feed costs.”
Ag Equipment Trends
According to Melhim, farmers have a need for new equipment. However, in the interest of preserving cash flow, row crop farmers have been extending replacement cycles and deferring new purchases. As a result, ag equipment shipments have continued trending downward since their 2022 peak.
High-horsepower equipment, which is heavily dependent on the row crop farmer segment, has suffered the most. Retail sales have fallen to historic lows through June. Current data suggests 2026 will finish 18-25% below 2025.
Looking ahead into next year, Melhim said the average fleet is still relatively young, which makes it hard for farmers to look past their financial struggles to pull the trigger on new equipment purchases.
“The most likely near-term outlook is relatively flat demand,” Melhim said.
Low-horsepower equipment has shown more resilience due to its broader market appeal and reduced reliance on row crop farmers. That said, retail sales have still been trending downward, trailing both 2025 levels and the five-year average.
Financed equipment sales for both new and used ag equipment have continued to trend downward despite some lowering of interest rates over the past year. “This goes to show you that financing can facilitate a purchase, but it can’t substitute for farmer profitability,” Melhim said.
Inventory levels improving. Manufacturers and dealers have adapted to the soft equipment market conditions. Inventory turnover continues to improve, drawing closer to historical norms. High-horsepower equipment sits at five months, compared to a norm of four months. Low-horsepower equipment is drawing very close to its six-month norm.
According to Melhim, this more balanced supply-demand relationship is reducing pressure on dealers, preserving asset values, and containing carrying costs.
“This might not mean demand is strong, but it does mean the channel is getting healthier,” Melhim explained.
“The market may be transitioning from rapid contraction to stabilization.” -- Al Melhim
Construction At-a-Glance
“Global construction output is set to return to growth in 2026, though the recovery is expected to remain relatively shallow and uneven across different regions,” Hopgood said.
While global output is expected to expand a modest 0.8% this year, it is slightly better than the estimated 0.5% growth seen in 2025. Furthermore, this year’s growth would be much stronger if China, the world’s largest construction market, was excluded from the calculations. In that scenario, global output would expand 3.1%. China’s construction industry has struggled significantly, particularly in the residential sector.
Given the above analysis, Hopgood said there is momentum in many markets around the world despite a challenging backdrop of consistent cost pressures, high interest rates, entrenched labor shortages, and geopolitical shocks. The only geographic region expected to contract this year is North-East Asia at -1.2%. North America is expected to grow 0.7%.
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A Closer Look at North American Construction
Both the U.S. and Canada are expected to see growth this year, albeit a downgrade from what was anticipated earlier in the year:
- U.S. – 0.6%, down from earlier prediction of 1.08%
- Canada – 1.2%, down from earlier prediction of 2.6%
In the U.S. market specifically, data centers have been the hot segment, with 11% growth expected this year. A lot of activity has been happening in Texas, followed by Virginia, Georgia, Arizona, and Illinois.
Other strong growth segments in the U.S. include infrastructure, energy and utilities, and institutional construction. Residential construction remains flat, while office construction and industrial construction are expected to decline 7.7% and 8%, respectively.
Looking ahead to 2027, total construction output is expected to grow 1.6% in the U.S. and 1.9% in Canada. Growth is forecasted to pick up a bit in 2028, to roughly 2.1% in the U.S. and 2.9% in Canada. Hopgood said the stronger growth starting in 2028 can largely be attributed to data centers, grid and power, and public infrastructure.
Hopgood said there is roughly $7.4 trillion in the North American construction pipeline that will help fuel that future growth. Government funding is an important mechanism to help move that money from planning to execution. U.S. legislation like the BUILD America 250 Act authorizes $580 billion in surface transportation spending.
As funding shifts toward roads and heavy civil in the U.S., Hopgood said construction equipment manufacturers will see stronger demand for earthmoving and paving equipment.
One potential challenge in the U.S. is that funding under the Infrastructure Investment and Jobs Act (IIJA) is set to expire on Sept. 30. Lawmakers have worked out a short-term fix, which should help protect road and bridge projects that have already been announced. However, transit and passenger rail projects could see significant cuts if Congress doesn’t provide a more permanent solution.
The Data Center Divergence
The rapid expansion in data center construction has garnered a lot of attention not only in the U.S., but around the globe. As Hopgood explained, 31 markets saw $150.8 billion invested in data center construction in 2025. That investment has grown to $173.8 billion this year and an expected $318.6 billion by 2030.
“Demand is definitely not an issue, as we’re seeing a lot of capital chasing this market,” Hopgood said.
Despite strong demand, the delivery of data center construction projects is dependent on the securing of land, permits, power, and critical equipment such as transformers — all of which have proved to be challenging from time to time. Additionally, rising global grassroots resistance to data centers is complicating matters for developers and governments alike.
In the U.S., for example, at least 12 states have introduced moratoriums on data center construction this legislative cycle. Furthermore, more than 140 locally based groups have been pushing back on data center projects across the country. Some polling suggests two-thirds of Americans now oppose data center construction.
The growing divergence between investors and the general public has caught the federal government’s attention. The U.S. government has announced several initiatives aimed at soothing citizen concerns, such as proposing that U.S. hyperscalers and other firms supply their own power to new data centers. The swaying of public opinion could prove pivotal in enabling data center projects to advance from the planning stage to actual execution.
