It could be a good year for farmers who want to buy used machinery.
Booming sales of new machinery in the last two years have dumped a surplus of used equipment on dealers, and “they will be energetically promoting the sales of used equipment,” says the president of the Canadian Farm and Industrial Equipment Institute.
New equipment sales took off during the past two years because farmers had been holding on to old machinery since the hard economic times of the mid-1980s, Brent Hamre said. Better commodity prices and growing conditions in the mid-1990s allowed farmers to upgrade.
Read Also
Agriculture ministers agree to AgriStability changes
federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
But the brisk sales mean most farmers who wanted to buy new machinery have already done so, Hamre said.
The farm equipment manufacturing industry is expecting 1998 sales of new machinery to be slower than last year, said Hamre of the institute, which represents multinational machinery manufacturers.
Not only have falling grain prices bitten into farmers’ pockets and a dry fall and winter cast a shadow on 1998 crops, but the recent past is catching up to the manufacturing business.
It is paying for its success.
“With two solid years of spiraling upward sales” the industry can’t expect sales to keep pace this year, said Hamre.
“While we still look to 1998 as another strong year for most producers, it won’t be quite as good as 1997.”
In 1997, sales of four-wheel-drive tractors jumped 36.8 percent, and self-propelled combine sales jumped almost 13 percent. At the same time, combine inventories in December 1997 were higher than in 1996, with four-wheel-drive tractor inventories slightly lower.
Buyers this year have good used machinery to choose from because many of the new equipment purchases in 1996 and 1997 involved trade-ins, and “dealers need to move that equipment,” Hamre said.
These factors have made the manufacturing firms cautious, said Larry Schneider, of the Prairie Implement Manufacturers Association, a group that represents Western Canadian farm machinery makers.
“Equipment manufacturers are starting to watch their inventories very carefully,” said Schneider.
Doug Warriner of Flexi-coil said his company expects a “softer 1998” compared to last year.
“We’re seeing a little more caution (in farmers.) But the sales are still very good (across) Canada and Western Canada.”
Warriner attributed the start of the slowdown to the low initial grain prices released in August.
Schneider said the dry fall also encouraged farmers to delay equipment purchases.
“Farmers generally buy tomorrow based on what they see today,” Schneider said. Combined with low grain prices, that created a much less optimistic view of the future than last year at this time.
Warriner said his company thinks grain prices will recover later in the year, a forecast Hamre shared.
Rising interest rates
But one wild card that could play against machinery sales is the state of the Canadian dollar. Hamre said short-term drops in the dollar can help Canadian grain sell on the world market because it is cheaper for buyers.
But the low value dollar prompted the Bank of Canada to raise interest rates a half a percentage point.
That might cut machinery sales because low interest rates are one reason the machinery business has boomed for the past two years, Hamre said.
Schneider said the expected sales slowdown also means some cautious manufacturers are not hiring new staff.
“They’re having a tendency to hold the line and even lay off staff,” he said.
