Farm Credit Canada's chief economist J.P. Gervais says with a good crop in 2022, receipts for 2023 are going to rebound and that should sustain the demand for equipment.
He notes there are caveats to this positive outlook, interest rates is one of them, the cost of farm inputs overall, and the weakening Canadian dollar.
While the depreciating loonie makes new tractors and combines more expensive, it also has a positive effect on farm commodities destined for export.
Gervais feels the used equipment market is expected to stay robust for most of 2023 and into 2024.
FCC says the used equipment market has seen increased demand because of the pandemic-related shutdowns with limited availability for new equipment.
He says we've seen quite a bit of disruption in the system from problems accessing parts to equipment, but most of the indicators are telling us that, globally, the supply chains are improving.
"One thing that is significant, is that domestically if you look within our borders, at some of the supply chains. Businesses are saying we're still not able to source parts, products, equipment, so forth that would allow us to be operating at full capacity."
As a result of the supply chain disruptions we saw over the past two years, tractor inventory levels are down 42 per cent, and combines are down 47 per cent from the five-year average.
Equipment manufacturers are expected to increase production of new equipment due to the changing economic environment providing the opportunity for inflationary pressures in the used equipment market to moderate.
FCC reports farm equipment sales for 2023 are projected higher for high horse-powered (HP) tractors, combines, and implement sales driven by strong crop receipts:
· 100+ HP tractor sales to rise 8.7 per cent
· 4WD tractor sales to rise 13.9 per cent
· Combine sales to rise 19.3 per cent
· Canadian agricultural implement manufacturing to rise 32.2 per cent
However, small HP tractor sales, which are largely driven by the health of the Canadian economy, are expected to slow in 2023:
· Less than 40 HP tractor sales to decline 0.4 per cent
· 40 - 100 HP tractor sales to rise 0.4 per cent
Gervais adds if you look at upgrading your equipment it has to make sense from an efficiency standpoint.
"You have to see possibilities of saving either on costs or making sure that you can get a little bit higher output, minimize waste, or whatever the story is. I mean, in your operation, you have to have a line of sight towards high efficiency and higher productivity when you bring in new equipment."
To hear Glenda-Lee's conversation with J.P. Gervais click on the link below.