Farm equipment sales dipped in first quarter

OTTAWA – Farm equipment purchases dropped by 5.1 per cent during the first quarter of 2024 and will likely be down by 2.2 per cent for the year, says Farm Credit Canada. Earlier this year it projected an 8.4 per cent increase in equipment purchases.

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Sales should recover somewhat in future years as farm profitability resumes, FCC said. “The decline is due to tighter farm profitability, high equipment prices, and elevated interest rates. A slowdown in Canadian sales this year was always in the cards. For starters, large US agricultural equipment manufacturers had already begun to curtail production in response to declining demand. It was just a matter of time before the same happened north of the border as well.”

“Also, sales trends between Canada and the US diverged following the pandemic with 2023 sales surging this side of the border after supply chain issues were sorted out. After such a solid year, a slowdown was inevitable.”

Tighter profitability has farms placing a greater emphasis on their per acre equipment costs, reducing demand for equipment. Manufacturing equipment sales are projected to experience slow growth in the coming years. Global trade tensions and the evolution of agricultural commodity prices are key drivers of the trends in the demand for farm equipment.

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Higher equipment prices, as opposed to volume, are largely responsible for U.S. agricultural manufacturing sales growing 20 percent in the first quarter of the year but large U.S. agricultural manufactures are curtailing production in anticipation of 10 to 15 percent declines in large agricultural equipment sales this year, the FCC said.

“While US manufacturing inventory values ​​have declined slightly so far this year, they are expected to remain elevated. A similar trend is occurring here as slowing Canadian agricultural manufacturing sales and rising equipment prices have resulted in rising inventories.”

The drop in machinery production by large US manufacturers has them focusing on producing equipment that is in most demand, such as high clearance sprayers, and reducing the time from order to customer delivery. Canadian manufacturers may be in a similar situation as most are small niche manufacturers.

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Various prefabricated metal and steel products are the main raw materials in equipment manufacturing. The US Midwest steel futures contract, which is used as a proxy for costs, is currently trading sideways. Slowing global demand and potential oversupply in places like China could result in prices trending lower. There is uncertainty following the US announcing it will re-impose tariffs on certain Chinese steel and aluminum products on Aug. 1.

The US imposed numerous steel and aluminum trade tariffs in 2018 with several trading partners, including Canada and China. These trade barriers increased production costs as tariffs were applied each time a product crossed the border. In equipment manufacturing certain components may cross the border multiple times prior to ending up in agricultural equipment. Further impacting the agriculture economy this year, agricultural markets were caught in the crossfire of trade tensions. US tariffs on steel and aluminum imports were met by retaliation on US exports of agriculture and food products. China’s 25 per cent tariff on US soybeans weakened the demand for US soybeans, which resulted in price declines and lost revenues for Canadian farmers.

Canadian manufacturers must also think about the possibility of falling demand for raw materials and resulting downward price pressures, FCC said. “On the flipside, tariffs could lead to rising costs. Evaluating raw material needs and planning cost-effective purchases based upon various scenarios for 2025 and 2026 will be imperative to support profitability.”

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