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
Comments
Deere and Cat are at 52 week lows, the cyclical commodities give great opportunities to become owners.
I own neither right now, but I'd go with Cat, as their share price has been hit harder with more global exposure to mining and oil. Deere is more tied to agriculture which hasn't declined as much as mining materials and oil.
Deere could fall further.
Raube Beuerman
Take your own advice. What's stopping you from selling the 16,000/ac ground and investing in CAT?
Like I recently posted, I have not bought land since 1996.
I view land a lot like stocks.
Yesterday I purchased Potash Corp at $28 dollars. The 52 week high was $47.10, of course only those that buy land at all time highs would have purchased Potash at that price.
It's like this, even if POT reaches new highs, I won't sell.
I once heard a wise lady say-"it's all about the dividends dummy".
Why doesn't this anonymous poster tell us what is stopping him/her from buying Cat?
Raube Beuerman
Getting high with pot is not hard . Now the price might crash with all the medical mary-jane .
Why did you not buy kitty stocks as you told the other poster to ?
I was always told to be cautious of any financial advisor who wouldn't take their own advice. In this case, it is to sell high priced Perth county land at $16,000/ac and buy low priced CAT stocks. Do you not own high priced Perth county land?
1) I live in Huron
2) I am not a financial adviser
3) Please provide link of where I said to sell land
Raube Beuerman
Do you still own two farms?
This bias anonymous poster sat at my kitchen table a while back and discussed a succession plan where in my parents would end up with nothing.....except six feet of dirt above them.
I said no thanks.
As far as answering the question of farm ownership, I am only a small percentage shareholder of another property that I have not yet purchased.
Raube Beuerman
No dogs in the race here but you suggest people buy CAT.
If you think I am guilty of pushing CAT, then most of the anonymous posters on this site are guilty of pushing quota. I don't see you calling them out.
But I'm not guilty of pushing CAT- I'd have to own it first.
I want the price to fall further, so, obviously, I'm not pushing it.
On second thought, I have no idea why it would matter in speaking of the stocks I own, nobody listens to me anyway.
Everywhere I look there seems to be no shortage of self-indulgence going on.
Now use your head.
Are you going to stop using a bank this week? How about electricity, a phone, your vehicle, or a grocery store?
Raube Beuerman
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