Farm equipment demand to remain high, but more price hikes likely

Glacier FarmMedia – Demand for farm equipment should remain high through 2023 despite higher interest rates and projected price increases, according to a new report from Farm Credit Canada (FCC).

Much of the demand stems from relatively high commodity prices and strong farm cash receipts, but the COVID-era supply chain hangover is also a factor.

“Inventory is hampered by the supply chain disruptions we saw over the past two years,” said FCC’s chief economist J.P. Gervais.

Why it matters: The farm equipment market is still seeing high demand despite lower than average inventory, and it will not likely improve until 2024 according to FCC.

Tractor inventory levels are down 42 per cent and combines are down 47 per cent from the five-year average, he noted. Inventory will remain low through 2024, the report predicts.

Buyers can also expect continuing sticker shock.

“Most new tractors and combines sold in Canada are manufactured south of the border, so an expected depreciation of the loonie through 2023 should lead to price increases,” Gervais said.

While demand for equipment will remain high, sales projections are mixed.

Higher horsepower tractor, combine and implement sales are expected to see year-over-year growth, but lower horsepower tractor sales, which are more closely tied to the economy, are expected to decline because of slowing economic growth.

“We’re seeing a lot of robust activity in the market for a variety of reasons,” said John Schmeiser, president of the North American Equipment Dealers Association-Canada.

Buying patterns come down to three factors: weather, commodity prices and interest rates, he said.

“If the weather co-operates, we’re going to have a crop in the field,” he said. “If there’s a crop in the field, obviously customers are going to reinvest in their equipment.”

But if commodity prices soften, some will postpone equipment upgrades, he added.

In terms of interest rates, Schmeiser said farmers have cash on hand, which helps offset higher rates.

And while rates have been edging up recently, they’re not at the crisis level of the late 1970s and early ‘80s when lending rates were as high as 20 per cent.

Nevertheless, rising interest rates are a growing concern with customers.

“It’s not a factor that we really had to look at very much recently, but I know our customers are watching as interest rates start to creep up,” said Schmeiser.

The Bank of Canada has been steadily increasing its key lending rate, which now stands at 3.75 per cent. More hikes are expected, albeit smaller ones.

Schmeiser also said dealers need to catch up on inventory.

“The good news on that front is with parts availability,” he said. “When the pandemic started in March of 2020, the first impact that we saw was on parts availability. Although it’s not where it needs to be, the manufacturers are telling us that their fill rates are improving month over month. So the worst of that is behind us.”

But new equipment is a different story.

“The manufacturers are telling our dealers that they’re having issues with their providers, their vendors and their suppliers. Whether that’s raw materials or components, all of those things have been problematic. Everyone is in the same boat here.”

He also predicted it will take until 2024 for things to return to normal.

“We’re not forecasting that we’ll return to pre-COVID conditions until the fourth quarter of 2023 as a best-case scenario,” said Schmeiser. “And with that comes uncertainty in terms of delivery times.”

– This article was originally published at the Manitoba Co-operator.