Promising farm cash receipt projections suggest new farm equipment sales will slowly improve over the next two years, according to Farm Credit Canada’s (FCC) latest agriculture economics report.
The report, Projecting 2016-17 Farm Receipts and Equipment Sales, forecasts a seven-per-cent recovery in total farm equipment sales for 2017, buoyed by projections of stronger cash receipts in coming years.
“Farm equipment is among the most valuable assets for many farmers and is a great indicator for the state of the farm economy,” said J.P. Gervais, FCC’s chief agricultural economist. “While producers, manufacturers and dealers must exercise caution, strong demand for agricultural commodities, low interest rates and a stable Canadian dollar are all factors that should trigger improvement in the new farm equipment market.”
Total new farm equipment sales fell by 13.8 per cent in 2015, due to uncertainty surrounding Canadian crop production and weaker commodity prices. Higher prices for new equipment in Canada- as a result of a weaker Canadian dollar – also contributed to a decreased demand for equipment.
Strong new equipment sales prior to 2014 made 2015 sales appear low, even though they were in line with the 10-year average.
“Equipment sales are usually a leading indicator of farm health,” Gervais said. “Tighter margins in recent years have led several farmers to choose leasing over buying their agricultural machinery. We’ve also seen new groups of producers in the market buying and sharing farm equipment.”
New farm equipment sales for 2016 started off slow compared to 2015 sales levels, but are expected to turn the corner and should begin strengthening towards the end of 2016 and into 2017 thanks to an improved agriculture economic outlook, according to the FCC report.
“The reason we are projecting a turn-around in new farm equipment sales is that cash receipts for various agriculture sectors are looking stronger,” Gervais said. “Nothing is written in stone, but the key indicators are looking pretty good.”
The report projects crop receipts will increase 5.8 per cent in 2016, with a further 3.8-per-cent increase in 2017. These projections are highly influenced by strong prices in futures markets for major grains and oilseeds, as well as a Canadian dollar that is expected to remain below its five-year average.
Gervais said low interest rates also have both short- and long-term effects on farm equipment sales. Continued low interest rates should boost sales, especially of larger equipment.