Iron backlog gone as equipment makers rightsize

It’s taken a few years, but dealers have finally whittled down inventories

Two years ago, you couldn’t drive past an equipment dealership without noticing the rows upon rows of machines — carry-over of anticipated demand that never came.

“In 2013 and 2014, everybody was firing on all cylinders,” said Leah Olson, president of the Agricultural Manufacturers of Canada.

“With our record harvests, there was a fundamental shift up in demand, and as a result, equipment dealers stocked up.

“We had got used to this new norm, and then demand dropped off.”

Faced with a drier year in 2015, producers tightened their purse strings, and equipment sales slowed, leaving dealers to off-load the surplus inventory that lined their lots.

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It took a few years, but that backlog is now gone.

“Demand is getting back to a more natural state, and there isn’t as much equipment that’s been sitting on the dealers’ lots,” said Olson. “It’s a bit of a return to what would have been normal before 2013.”

That’s not to say demand isn’t good, said Graham Drake, president and chief executive officer of Cervus Equipment.

“The last couple of years… have been fairly strong for new equipment sales,” said Drake. “Because of the farm health overall in Western Canada, there has been good buying activity in Canada compared to the U.S. over the last couple of years.”

It’s been a different story south of the border, where prices for corn and soybeans have plunged. And, of course, American farmers don’t get the currency relief that their Canadian ones do because of the lower loonie.

Still, equipment sales are expected to be about five to 10 per cent above last year, and manufacturers are starting to boost their production in response, said Drake.

“Manufacturers like Deere had reduced their production because of lower demand in the U.S., but they’re now starting to ramp that up a bit,” he said.

But the dry conditions in Western Canada could put a damper on demand, Olson added. Earlier this year, Canadian short line manufacturers were optimistic about how the year would go based on initial demand. Many sold out early — “they hadn’t been that busy in a while.”

A dry start and lingering drought-like conditions in some parts of the Prairies may have dampened demand, said Olson.

“That’s how it is every year — there’s lots of optimism if you’ve had a good harvest, but as you get into the year and things start to look not as great, you start to pull back a bit.”

Higher prices

Pricing could also cause farmers to hold off, said Drake. Prices typically increase at around the rate of inflation — two to three per cent a year — but this year, the cost of steel has risen, and those increases (combined with a weaker Canadian dollar) will likely mean a higher price tag for producers.

“Generally, Deere tries to hold its costs wherever it can, but there has been some increased pressure on its costs, which naturally ends up flowing through to the price of a machine,” said Drake.

“The reality is that steel is more expensive, and manufacturers have to pass on some of those costs.”

Olson agreed.

“With the unstable steel prices and protectionism increasing, particularly in the United States, that will impact prices,” she said. “There’s a huge concern about steel tariffs, and that’s playing a bigger role in farm machinery price increases than anything else.”

That could push some producers to buy used equipment instead, said Drake.

“Right now in Western Canada, there is a pretty good selection of used equipment, so that usually translates into pretty good price points,” he said in an interview in May.

“The value in used equipment is there.”

That’s especially true for producers who are looking for new technology but balk at the price of new equipment.

“Some of the late-model used equipment has a good price point and still has some of that technology that farmers want to be able to access,” said Drake, adding “equipment that is five or six years old can still be retrofitted with a lot of good technology.”

However, if you are looking at buying new (or new to you) equipment for this year’s harvest (or next year’s planting) season, don’t wait too long as selection goes down the closer it gets to the season of use.

“If producers are looking to upgrade their combine, the sooner they do it, the better,” said Drake. “They can then work with their dealer to make sure it’s at a price that they all agree on with the options and in the condition they want.”

Producers don’t always have the luxury of time when buying equipment, Drake added, but a little bit of planning could save them a big headache — and some money.

“Preplanning is advantageous to a farmer to get the best value that they can,” he said. “The sooner you think about it ahead of the season, the better fit you’ll find for your equipment needs.”

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