Canadian farm equipment sales drop in 2015

Wednesday, September 23, 2015

by SUSAN MANN

Long-term global trends indicate increasing demand for farm tractors and harvesting machinery will eventually fuel the sector’s growth.

For this year, however, Association of Equipment Manufacturers figures show tractor sales as of August are down 10 per cent in Canada compared to the same period in 2014. Sales of self-propelled combines are down nine per cent as of August compared to the same period in 2014.

The association, based in Milwaukee, Wisconsin, represents companies manufacturing equipment, products and services used in agriculture, construction, forestry, mining and the utility industry. It has more than 850 companies as members.

Charlie O’Brien, association senior vice president, says the farm equipment sales decline this year is significant. “There is a very close tie with the commodity prices, specifically with corn and soybeans, and those prices have certainly gone down.”

The link between commodity prices and equipment sales applies to both the American and Canadian markets. However, the Canadian market is more diverse than the United States’ market, which is mainly dependent on corn and soybeans. “Canada, fortunately, has more diversity and along with corn and soybeans has canola, lentils, peas. There are more crops there,” O’Brien says.

In Ontario, Karl Davis, president of Green Tractors Inc., a John Deere dealership with seven outlets across Ontario, agrees commodity prices have influenced equipment sales.

“There’s always a cycle in this business,” he says. “We’re entering a down cycle and we’ve been through these many times. It’s nothing different than we used to have.”

Additional factors are also affecting equipment sales in Canada compared to those in the United States, he adds.

A year and a half ago, the Canadian dollar was on par in value with the American greenback. Now, the loonie is worth US $0.75. “That’s like a 32 per cent increase” in equipment prices because most farm equipment is manufactured in the United States, Davis says.

Another factor is the implementation this year of the final phase of the new U.S. emission standards for equipment with diesel engines. The cost of developing new engines to meet the standards has added about 20 to 25 per cent to the price of a new tractor for buyers. “It adds significantly to the cost of tractors,” he says. “What we’re dealing with now is how does a farmer cash-flow this expensive new unit?”

Traditionally, on bigger units farmers financed it over five years and “now we’re looking at seven to 10 years,” he says.

Moreover, in turn, “the used market has become pretty strong, as has the under 150 horsepower (tractor) category, which is mostly for the livestock and dairy sectors,” Davis says.

O’Brien says equipment sales in Canada and the United States are projected to be flat for 2016 compared to this year.

He doubts North American equipment sales will ever return to previous peak levels. “I don’t hear anyone projecting that it’s going to go back up to that peak, at least in the short term. Sales are down now to a level that we expect to see.”

A Transparency Market Research report published earlier this month, however, projects the global agriculture and farm machinery market will grow by 8.7 per cent from 2015 to 2022. Increasing demand for farm tractors and harvesting equipment is pegged to drive the overall market growth, according to a press release on the report’s release. Tractors and harvesters are leading growth because they’re used for a multitude of purposes.

The global agriculture and farm machinery market was valued at $144.10 billion in 2014 and is forecast to reach $281.61 billion by 2022, predicts the report.

The report says some of the key factors influencing the global farm machinery market include increasing mechanization of agriculture and increasing demand for food consumption due to the rising population.

O’Brien says the long-term numbers reflect what “do we have to do on the equipment side to feed the world? What has to happen is the equipment has to continue to get better and the technology has to continue improving and become more efficient so you can get more done with a machine.”

Davis says machines are getting bigger but “there are fewer of them being sold too.” BF