To put it mildly, sales of new farm equipment were terrible — even worrisome — in January and February, based on numbers tallied by the Association of Equipment Manufacturers (AEM). Purchases of four-wheel-drive tractors were down an astonishing 55 per cent compared to 2014. Worse yet, new combine sales had virtually collapsed, slipping 60.6 per cent.
Those invested in the equipment industry couldn’t help but notice.
But the grim picture painted by those early-year sales reports may not have told the whole story, according to Jim Wood, vice-president, agriculture, at Rocky Mountain Equipment, Canada’s largest CNH equipment retailer. According to Wood, the winter of 2014 was “a blip. It was an anomaly. All of a sudden people look at the industry and go, ‘Holy smokes it’s down so much over last year.’ Well that’s because last year was too high compared to the year before.”
The reason why they were abnormal, however, may not be what farmers would think. Or at least, not completely the reason that farmers might suggest, i.e. strong farm incomes.
Instead, the early 2014 numbers got pushed up due to changes in delivery dates for new equipment based on customer orders, primarily from one major manufacturer.
“I think the big thing was last year (2014 sales numbers) gave such a false sense of what was going on,” Wood says. “In December of 2013 and January, February of 2014, that’s when Deere delivered a lot of product, which it traditionally doesn’t do. And that really spiked the industry (numbers).”
So a sober look at the data reveals that this year’s volumes may not be quite as dreadful as first thought, and Wood confirms that while the overall market for new farm equipment in Western Canada so far this year has dropped off significantly, it hasn’t fallen as badly as those early market reports suggested.
As if to emphasize the point, April sales numbers actually showed a gain over last year, which has helped correct the market data. The number of four-wheel-drive tractors sold that month was up, pegging the overall year-to-date market reduction at just 22 per cent compared to the same time in 2014. So while that’s still a little painful for dealers and manufacturers, the market hasn’t really fallen off a cliff the way the early numbers suggested.
Not all the news is bad. Some new equipment categories are showing surprising strength. Sales of rigid-frame tractors above 100 horsepower are strong, and April sales of these machines beat out the numbers for April 2014 too, bringing the overall year-to-date sales in this category close to par with last year. They now only lag by 1.6 per cent, with much of the demand in the category due to livestock producers.
“We’ve seen our cattle stuff, loader tractors and balers, really increase,” notes Wood. “But they are smaller dollar amounts than what cash crop (equipment) is.”
That means from a dollar amount perspective, overall industry sales totals remain much below last year. And despite an active April, the low U.S. dollar exchange rate and competition from an ample supply of late-model used machines, most in the industry are willing to bet new equipment sales will likely finish out the year well below 2014 numbers.
“I think it’s the new normal,” Wood says. “If you look at it from our side, we’re trying to sell a little less new, because our used is just that much more attractive. I can’t see it changing unless someone brings on some new technology. It’s hard to justify a lot of the price increases from manufacturers, because, let’s face it, a combine from five years ago will still go out and do what a new combine will today. It’s considerably cheaper for (a farmer) to buy a one-year-old machine than a new one.”
And that factor has been driving demand at auction sales.
“The interesting thing on (auction) prices is, we started the year a little conservative in our own business model,” says Simon Wallan, Ritchie Bros. vice-president of agriculture for Western Canada. “Commodity prices dropped a bit through the last two quarters of 2014. We thought that would have a negative effect on the price of (used) equipment.”
But any effect has been limited, and by mid-April, auction sales across the West were attracting crowds as large as last season. And they weren’t made up of just onlookers. Many took their bidding hands out of their pockets.
“There have been good turnouts, as good as previous years,” says Kim Kramer of Saskatchewan-based Kramer Auction Ltd.
That interest has actually pushed up prices for some types of equipment.
“When it comes to truck tractors, anything in good condition with a pre-emissions engine is very, very sought after,” Wallan adds. “It doesn’t matter what sale you’re at, a farm sale or an industrial one.”
Kramer has noticed the same trend at his company’s sales, with pre-emissions engines in any type of machine garnering a lot of interest.
“In trucks, anything pre-emissions, I bet they’re up a good, solid 20 per cent,” Kramer says. “A pre-emissions Kenworth or Peterbilt, those brands, they’re a really strong sale. For a tractor, maybe a Tier 2, without the emissions controls, they’ll bid way stronger on it. Guys are saying they can buy an older tractor, as long as it has the horsepower and the hydraulic power, it will do the same job as a new one.”
But the kind of frenzy that had driven demand for used machines at auctions in past years has evaporated. Buyers now seem to be taking a more measured, careful approach. And they know there is currently a very large selection to choose from, so there is no need to panic and overpay.
“Guys this year are more selective,” observes Kramer. “They’re not pushing the panic button like in previous years where they’d get in a bidding war because they were worried they wouldn’t find another one. One guy told me at an auction sale yesterday, ‘I’ve bought so much machinery there’s no sense of urgency anymore that I need to buy it today or I won’t find another one. There are lots available.’”
“I think they’re looking for specific pieces and they don’t mind travelling longer distances to find them,” adds Wallan. “They want good pieces, and they’re not going to overpay for something that’s tired, below average or worn out.”
Along with the old, tired and worn out, a couple of other types of equipment saw lagging demand this spring as well. Swathers are among them. Their selling prices are starting to fall, which doesn’t surprise Wood.
“Now you have canola varieties that can be straight cut, so you’re going to see the windrower market drop off,” Wood explains.
“Seeding equipment is really volatile,” says Kramer. Guys are getting really selective on that. There is such a variety out there right now, I think it has caused the prices to be volatile.”
“It’s a buyer’s market out there for seeding tools,” confirms Wallan. “Every farmer out there seems to want something different in a seeding tool, so we are having trouble finding consistency when it comes to size and specifications.”
The result of all this is that many industry players now seem ready to take a deep breath and acknowledge that the market for used equipment is staying relatively stable, despite the previous concern over the large supply. But the evolving, more competitive sales environment for new machines means there may be some realignment happening in that sector.
Exactly which dealers farmers are willing to look to for their new equipment may be fluctuating. Wood thinks the products and services each manufacturer offers may now play a more critical role in swaying farmers’ purchasing decisions than it ever has.
“If you look at our new sales numbers, they were pretty well flat with last year, but the industry is down 40 per cent from last year,” Wood says. “So, guess who picked up market share? In our first quarter this year, we’re really, really, happy. Our used sales are way up, our new was consistent, and our inventories are coming down.”