HANNOVER, Germany — Farm machinery sales in North America and Europe are lower than they were in 2013 and 2014 because farmers are sitting on their wallets.
Companies will likely have to wait out the physical and taxation depreciations of the machinery that has already been bought unless they can give farmers a competitive edge, says the leader of a major European farm organization.
Reinhard Grandke of DLG, which operates the Agritechnica farm show, said the long term remains strong in agriculture, but the next year or two will have its issues.
However, despite tight times for many of the world’s leading farm machinery makers, this year’s Agritechnica set a record for exhibitors at more than 2,900.
“Our sector is extremely healthy (despite flagging sales),” said Bern Scherer, who heads the German farm machinery organization VDMA.
“We have more technology and products to offer the farmer than ever before … and just had several years of the best sales in most companies’ histories. In almost all areas of (farm machinery), we would have negative (sales growth) values, but that is no reason to panic. It is not a (long-term) trend for the industry.”
North America and Western Europe is awash with large inventories of late model used machines, most of which are emissions Tier 3 or Tier 4 compliant and incompatible with lower quality, high sulfur or impurity diesel fuels found in the developing world.
This has eliminated what was once a major secondary market for larger used tractors, combines and sprayers, helped produce a glut and reduced trade-in values for machines still on the farms.
It’s yet another reason for producers not to buy new equipment.
However, many smaller, niche companies that serve specific markets, especially with products that have global distribution, are doing well, said Greg Blaszczak of Seed Hawk in Langbank, Sask.
He said the company’s air seeders are moving well, despite lower commodity prices.
“I think many prairie farmers did better than they expected this fall,” he said.
“And elsewhere in the world, producers are looking for new technology to make themselves more competitive, just like they are here.”
Grandke said most of the world’s wheat producers harvested better than average crops this year. Lower prices at harvest held down margins, but post harvest prices are rebounding and improving farmers’ perceptions of the year.
He said most grain farmers have seen tougher times than these and are still prepared to invest in their businesses.
A survey that his organization conducted in Europe this fall found that 46 percent of farmers were making new machinery purchases part of their near-term plans.
“They feel they must invest in new technology to remain able to pay the prices for land or they will lose that land to more competitive neighbours,” he said.
Scherer said farm equipment manufacturers in Europe had expected a sales decline of 10 percent from last year, but it appears it will be closer to seven.
The tougher times are expected to hang around longer in North America because of the large amount of good used equipment. This is partly the result of an American accelerated depreciation program, which created an incentive to trade in machinery semi-annually or even after a single season.
As well, farmers in Russia, Belarus, Kazakhstan and Ukraine are returning to the machinery market despite tariff barriers and problems obtaining credit, and “order books are improving.”
Scherer also said farmers in France, Spain and Italy are becoming more optimistic about their financial situation.
“While they haven’t started spending yet, it appears they soon will,” he said.
“The United Kingdom is keeping its negative outlook.”
Grandke said European farmers are investing in equipment now, with 10 percent saying they are buying or planning to buy bio-digesters, composting equipment and photovoltaic panel systems.
Grandke said many farmers are also planning to invest in precision agriculture tools in the near term. Twenty percent say they are actively using data to manage their farms and 70 percent feel they could be making better use of the technology.
Commodities analyst Corey Cherr of Thompson Reuters said another record crop is on the way for Brazilian soybean growers.
However, Scherer said financing remains a problem for Brazil and Argentina, and political instability is further complicating farmers’ desires to make capital investments.
“There is currently a scarcity of any practical, external financing available in South America,” he said. “(The) mood (among) the American continent’s farmers is becoming increasing negative,” largely because of soybean and corn markets in the U.S.
He said East Asia remains optimistic, particularly India and China. Turkey has only just experienced a downturn, but that isn’t based on agricultural economics. Instead, it is largely political and has “good prospects.”
A desire to invest is also improving in countries that used to belong to the former Soviet Union.
“Large-scale agriculture and large, powerful machinery form an inseparable combination, so they will remain in the game, one way or another,” he said.
Crop producers in Germany and Poland are indicating they might be the first in Europe to pull out their wallets, but it might be tougher for livestock producers. The recent end to dairy quotas has resulted in a continental over-production of milk, sending prices well below costs of production. A worldwide over-supply is compounding the problem, said Grandke.
Some areas have done better than others, but all regions are seeing record low dairy returns, off $10.30 per hundred kilograms this year.
Grandke said larger, more efficient operators and those with deep pockets will be able to ride out the low prices, but there will eventually be fewer dairy producers in the European Union.