Hot off the Press – How farm health drives equipment sales

Productivity is a critical element of modern agriculture. Farm equipment plays a significant role in making Canadian agriculture competitive in world markets.

How does farm health affect equipment pricing?

Our latest FCC Ag Economics report, Farm Equipment Sales for 2015, shows an important relationship between farm equipment prices and the Canadian agricultural economy.

Patterns in farm equipment purchases can help you predict the underlying health of agricultural markets. Our research shows farm cash receipts are a leading indicator of future farm equipment sales. When equipment prices go up, it’s a good indicator the agricultural economy is healthy.

The report also provides sale projections of new farm equipment for the rest of 2015 as well as 2016 and 2017.  

How did the farm equipment market perform in 2015?

New farm equipment sales declined 11% year-over-year through the first three quarters of 2015, led by a 29% decline in 4WD tractor sales and a 20% decline in combine sales. Small and mid-sized tractors, over 100 HP were down 18% and those between 40 and 100 HP were down 13%. Tractors under 40 HP performed the best in terms of sales but still declined during the first three quarters of 2015 at 6.5%. .

This slowdown in farm equipment sales hasn’t come as a surprise. We predicted this trend a year ago in our FCC Economic Update: Top 5 Economic Drivers to Watch in 2015.

Will the farm equipment market improve?

Overall, farm equipment sales are projected to remain weak in 2016 and 2017, with declines of 4.9% in 2016 and 2.7%  in 2017. The moderate slowdown in 2017 comes from a recovery in farm cash receipts and GDP growth in Canada.

Is recovery on the horizon for larger equipment?

Sales for larger items such as 4WD tractors and combines are projected to recover in 2016.   We predict sales for 4WD tractors will decline by 0.8% in 2016, while combine sales will increase 3.9% over 2015 volumes with improved crop receipts. The projected increases for 4WD and combine sales are 2.4% and 4.1% for 2017.   

What does this mean for the agriculture industry?

The slowdown in farm equipment sales in 2015, along with low growth in 2016 and 2017, must be taken in context of where sales have been.

The farm equipment market has done extremely well in the past five years. Our projected recovery in 4WD tractors and combine sales indicate the agriculture industry remains healthy

Producers are also making investments in farm equipment where payoffs are larger, which often times involves purchasing used equipment. Profit margins in agriculture remain positive, but finding efficiencies is critical for farming operations to remain competitive.

For more on the relationship between farm health and equipment prices, download our latest Farm Equipment Sales Report.

Leigh Anderson, Senior Agricultural Economist