Prairie Drought Likely to Impact Farm Equipment Sales

Overall demand for farm equipment is projected to remain strong this year due to a combination of strong prices for most crops and low interest rates.

However, drought in Western Canada and supply chain disruptions are clouding the outlook for 2022, according to an analysis by Farm Credit Canada senior economist Leigh Anderson.

Pre-orders of farm equipment have been strong, Anderson said, noting the nearly 11% increase in Canadian crop receipts in 2020 and the 18.1% increase through the first half of 2020. At the dealer level, strong demand for farm equipment in 2020 significantly reduced new and used inventories, creating further opportunities for manufacturing sales, he added.

Indeed, new farm equipment manufacturing sales increased 33.6% through the first seven months of 2021, Anderson said, with multiple equipment segments showing strength. For example, Canadian dealer purchases of new 4WD tractors, 100+ HP tractors and combines were up 62.8%, 46.8%, and 33.2%, respectively, in the first seven months of 2021 compared to a year earlier.

Farm equipment sales are expected to remain strong through the remainder of 2021, and the beginning of 2022, as many purchasing decisions for new equipment have already been made.

But beyond that, things get dicey.

Farm equipment sales from manufacturers are expected to weaken due to this year’s drought-reduced crop in Western Canada and high feed costs, challenging profitability, and leading producers to reconsider future investments. Additionally, shortages of semiconductors could result in higher farm equipment prices and delays in delivery of pre-orders, further impacting sales.

Meanwhile, strong demand for farm equipment for the remainder of 2021 is expected to reduce inventory levels further and continue to support higher prices, Anderson said.

Key farm equipment trends to monitor in 2022 include supply chain disruptions, the Canadian dollar, interest rates and farm revenues.

Anderson’s full analysis can be seen here:

Source: DePutter Publishing Ltd.

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