Economic Snapshot of Canada's Equipment Sector

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FCC Ag Economics

Economic Snapshot of Canada’s Equipment Sector July 2017

Growth in Canadian sales of selected farm equipment will continue into 2018

Sector highlights: next 12 months 1. Following two years of declines, Canadian sales of tractors and combines will grow in 2017 2. Combine sales will remain just below their most recent five-year average 3. Sales of 4WD tractors will pick up from recent lows and increase in 2017 then decline in 2018

As of June 2017, year-to-date Canadian farm equipment sales were strong. Combine sales were up 28.0% and 4WD tractor sales were up 21.6% in the first half of 2017, compared to the same period in 2016. Total tractor sales1 were up 19.1%. That’s a big improvement from the slowdown of the previous two years: in 2015, sales started slowing due to several factors, including uncertainty around prices in commodity markets and weather-related concerns for production. In 2016, total tractor sales declined 9.6%, 4WD tractor sales were flat at -0.2% and combine sales declined 5.9% from 2015 levels (Figure 1). Those drops followed strong equipment sales growth in 2014, when total tractor sales reached a high of 23,860 units as a result of producers’ anticipation of higher future farm revenues from rising commodity prices.

FCC Ag Economics expects combine sales will increase 27.3% (or about 500 more units) in 2017 (Figure 1), raising them to a level that will be just slightly below their five-year average (Figure 2). We expect they’ll soften again in 2018, with about 350 more units sold. These forecasts show combine sales normalizing at a level between the 20002007 annual average and the most recent five-year average.

Figure 1: Tractor sales are projected to increase in 2017 and 2018; combine sales to decline in 2018

Total tractors

4WD tractors 2015

2016

Combines

2017p*

2018p*

40% 27.3%

30% 20%

13.1%

10%

13.4%

9.1%

0%

-0.1

-0.4

-0.1%

-10% -20%

-13.2%

-0.4%

-5.9%

-9.6% -20.9%

-30%

-15.6%

-35.0%

-40% Source: Bloomberg and FCC calculations *2017 and 2018 figures are projections

FCC Ag Economics defines “total tractor” sales as 4-wheel drive (4WD) tractors, tractors under 40 HP, tractors between 40 and 100 HP and tractors over 100 HP. We report “total tractor” and 4WD tractor sales only, as many sales of smaller tractors are for non-agricultural purposes.

1

As of June 2017, total tractor sales were also trending higher (Figure 3). Sales declines in recent years for this aggregate category reflected lower sales of smaller tractors. We expect annual sales in 2017 to grow at a rate of 13.1%, to reach levels just below the most recent five-year average. The rebound in total new tractor sales we expect to see in 2017 (a 13.1% increase, or an additional 2,900 units sold) will continue in 2018, with 9.1% growth (equivalent to 2,300 units sold). The current projections suggest a rising sales environment in line with the most recent five-year average.

While 4WD tractor sales were also up in the first half of 2017, they’ve been trending lower for a couple of years. The 2017-18 sales projections compare favourably with the annual average sales of 2000-2007 (Figure 4), but we don’t expect sales in this market to reach its most recent five-year average in either 2017 or 2018. With sales growing at 13.4% in 2017 (about 120 additional units sold), and staying flat in 2018, the 4WD tractor market seems to be normalizing at a level between the 2000-2007 and 20122016 periods.

Figure 2: Combine sales 2000-2007 avg

2012-2016 avg

3,500

# units sold

3,000 2,500 2,000 1,500 1,000 500 0

2000<