Just two years ago, ag equipment manufacturers were struggling to keep up to customer orders. Assembly plants were working beyond their capacities pumping out virtually every type of machine at breakneck speed. That unprecedented demand was spurred on by seemingly unbounded optimism across all sectors of agriculture.
But there were a few muffled voices saying, “We’ve been here before, and this won’t last”.
They were, as it turns out, quite right. Many of the plants that couldn’t build equipment fast enough a couple of years ago have already laid people off in relatively large numbers. And a look at the sales figures explains why. By the end of 2015, sales of combines in Canada had slumped 32.5 percent compared to the previous year, according to the Association of Equipment Manufacturers (AEM). Four-wheel drive tractor sales tanked, too. They were off by 39 percent. Sales of other tractors above 100 horsepower slipped 25.5 percent.
The decline continued into 2016. By the end of April, four-wheel drive tractor sales fell off another 22.5 percent and rigid-frame tractors above 100 horsepower fared even worse, losing another 34.5 percent. In that same time frame overall imports of farm equipment into Canada from the U.S. were down 20 percent. What that means to the industry in real terms is a loss of U.S. $468 million dollars.
The story is similar inside the U.S., with AEM reporting a similar drop in sales there.
But the odd thing about the market today is those numbers don’t hold true everywhere in the world. Some regions are actually seeing gains in overall equipment sales, particularly in machines imported from the U.S.
For example, despite surveys showing widespread pessimism across most EU agricultural sectors, Europe imported 21 percent more equipment from the U.S. so far this year than last, according to AEM. That means an additional U.S. $495 million in sales. Central America’s imports of U.S. equipment ramped up 11 percent for a net gain of U.S. $304 million.
Those regional gains, though, aren’t enough to prop up total industry sales numbers. But while there are still a lot long faces in board rooms at equipment manufacturers all around the world, many executives report they expect to see the current downward sales trend reverse itself later this year—or at least stabilize.
And there are some encouraging signs that they may be right. The overall free fall of U.S. equipment exports is showing signs of slowing. In the first quarter of this year, total sales had fallen 16.7 percent. That number eased to 8 percent in the second.
If there is a silver lining in all of these depressing sales figures, it’s that the major—and many of the minor—equipment brands have managed to weather the storm reasonably well, continuing to produce profits for shareholders. That is very unlike the situation in the last century. When some manufacturers simply settled in to enjoy the boom times of the 1970s, they went bankrupt in the 1980s, because their executives didn’t recognize the kind of market swings and evolution in demand that are now a reality in the machinery market.
The loss of brands doesn’t benefit farmers anymore than it does the employees at closed factories who lose their jobs.
One thing seems certain; this slacking off of demand for new machinery won’t last forever, and we’ll eventually see another boom when farm commodity prices pick up again.
We’ve been here before, and this won’t last.