Canadian farm equipment market expected to be softer in second half of 2018

In the 2017 Economic Snapshot of Canada equipment sector, FCC Ag Economics forecasts for total tractor sales and combine sales were relatively close (total tractor sales projected 13.1% vs. 15.4% actual, combine sales projected 27.3% vs 23.9% actual). 4WD sales are typically more difficult to predict given its complement to seeding units. Our forecasts for 2018 will likely be different given the current global trade environment. 

The demand for new equipment is highly dependent on the health of the agricultural economy. During the first half of 2018, Canadian farm equipment sales have had moderate growth, averaging close to 5%. Rising interest rates, price pressures on farm equipment, slow growth in farm revenue along with a weaker Canadian dollar is expected to lead to softer farm equipment sales in the second half of 2018.

FCC Ag Economics expects farm equipment sales to be flat to lower for the remainder of 2018:

  • Overall total tractor sales are projected to increase 1.4%.
  • 4WD tractors sales are projected to decline 6.4%.
  • Combine sales are projected to decline 6.9%.

2019 farm equipment sale projections:

  • Total tractor sales falling 1.6%
  • 4WD tractor sales falling 12.5%
  • Combine sales falling 12.8%

Sales are expected to slow due to trade uncertainties around commodity prices and from lower expectations for crop yields due to the dry growing conditions in Canada. As a result, Canadian crop receipts are expected to have moderate growth of 2% in 2018 and 1.3% in 2019 reflecting the slowdown in both 4WD and combine sales in both 2018 and into 2019. Increased production over the last several years has supported crop receipts and farm equipment sales. Livestock receipts particularly those of beef and dairy operations are also a good indicator for 2WD horsepower tractors, reflected in our projections for overall total tractor sales to remain relatively flat. Livestock receipts are expected to grow 3% in both 2018 and 2019.

At the current time moderate growth in farm cash receipts means softer farm equipment sales. Despite a slowdown, relative to five-year average total tractor sales remain in-line with their five-year average of 25,829 units sold. We continue to expect both combine and 4WD tractor sales to normalize between the 2000-2007 and 2013-2017 period averages. Combine sales averaged 1,347 units during the 2000-2007 period and 2,341 units sold in during the 2013-2017 five-year average. Similarly, 4WD tractors averaged 633 units sold during 2000-2007 and averaged 1104 units over the past five years.

Factors that impact farm equipment sales:

  • The Canadian dollar – For every $0.01 movement in the value of the Canadian dollar, sales of farm equipment tend to change on average by 0.5%. The Canadian dollar is expected to average $0.78 in 2018 and $0.763 in 2019. Further declines in the value of the Canadian dollar will further reduce farm equipment sales.
  • Interest rates – For every 50-basis point increase, farm equipment sales decline on average by 1.25%. Interest rates are forecast to gradually continue rising in 2019.
  • Commodity prices and crop production reflected in farm cash receipts –Moderate growth in farm cash receipts is leading to softer farm equipment sales.
  • Growth of Canadian economy - Overall tractor sales are the result of a stronger Canadian economy and low unemployment levels leading to strong sales in the lower horsepower tractors generally not associated with agriculture.
  • Price of equipment - (Farm equipment sales are expected to soften in 2019 given a decline in crop receipts, a pressured Canadian dollar and increases due to advancement in technology and higher prices of raw inputs in the manufacturing process like steel). Rising farm equipment prices also have an impact on farm equipment sales, as most farm equipment is priced in U.S. dollars, the price of the new technology will also be impacted by the value of the Canadian dollar.

Our projections do not account for the impact of the current trade tensions and how the steel and aluminum tariffs may impact farm equipment sales. Predicting where sales will go during uncertain times can be extremely difficult. Check back next week where I will examine how current global trade tensions and the steel and aluminum tariffs impact farm equipment sales.

Leigh Anderson
Senior Agricultural Economist

Leigh joined FCC in 2015 as a Senior Agricultural Economist, specializing in monitoring and analyzing FCC’s portfolio, industry health, and providing industry risk analysis. Prior to FCC, he worked in the policy branch of the Saskatchewan Ministry of Agriculture. He holds a Master of Agricultural Economics degree from the University of Saskatchewan.