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Equipment sales to slow in 2024

Sales of ag equipment could decline by up to 15 per cent in Canada because of slumping grain and oilseed prices
An FCC economic outlook report expects weak grain and oilseed prices will dampen demand for new harvesting equipment in Canada in 2024 by up to 20 per cent compared to last year.

WESTERN PRODUCER — Farm Credit Canada recently released a farm machinery market outlook for 2024, and the news isn’t all that great for Canadian equipment dealers, especially when it comes to harvesting equipment.

Despite new combine sales growing 5.5 per cent in 2023 in Canada compared to 2022, according to the Association of Equipment Manufacturers (AEM), the FCC report projects sales will tank by as much as 20 per cent this year.

As well, used combine, header and grain cart sales are also expected to soften, trending below the five-year average. On top of that, dealer combine inventory levels are forecast to climb above the five-year average.

All of that dismal news is due to lower grain and oilseed prices, according to the FCC report, and others in the equipment industry agree.

“Lower expected farm income and a refreshed fleet is expected to pressure demand in 2024, resulting in weaker industry demand compared to 2023,” Agco chief executive officer Eric Hansotia said during a quarterly earnings webcast at the end of March.

According to AEM, Canadian combine sales had already fallen 5.2 per cent year to date by the end of March.

The picture is more dismal in the United States, where combine sales have already declined more than 20 per cent for the same period.

The slowing sales picture isn’t limited to North America. Brands are already seeing slower sales in most regions of the world.

And it’s not just combine sales that are slowing. Sales in most tractor categories have fallen as well, particularly those under 100 horsepower.

“More challenging global market conditions are expected in 2024 due to reduced commodity prices and modestly lower farmer income expectations,” said Hansotia.

“As a result Agco is forecasting lower sales in 2024.”

How much lower? John Deere spelled out its expectations in an earnings report webcast at the end of its first fiscal quarter of 2024, which began in 2023.

“Ag fundamentals, while down from the record highs of the last few years, have returned to near mid-cycle levels,” said Joshua Rohleder, Deere’s manager of investor communications.

“We expect large ag sales in the U.S. and Canada to decline 10 to 15 per cent, trending closer to the lower end of that range.”

However, it isn’t all bad news for the major brands. Improved profit margins are helping take the sting out of the slower sales projections.

“In 2023, net sales increased 16 per cent to over $55 billion, and we delivered record net income of over $10 billion,” John Deere chief executive officer John May said during that same quarterly reporting webcast.

“Our 2024 guide implied a roughly 15 per cent reduction in net sales, putting us at very similar sales levels to 2022. However continuing that forecast, our net sales of $7.5 to $7.75 billion contemplates at least a $400 million improvement over 2022.”

AGCO’s full-year sales numbers for 2023 declined two per cent from the previous year. Despite that, higher profit margins softened the blow there as well.

“Agco finished 2023 with record sales of $14.4 billion, up nearly 14 per cent from last year due to strong pricing as well as outperforming the global market, which was actually down in 2023,” said Hansotia.

“Record operating margins reached 11.8 per cent of net sales.”

One bright spot for Canadian equipment dealers is sales of four-wheel drive tractors. While sales in that machine category declined more than seven per cent in the U.S., more of those big tractors have been taking rides on lowboy trailers out to Canadian farmyards so far this year, with year-to-date sales jumping more than 10 per cent compared to 2023.

FCC projects the four-wheel drive tractor market will stay strong this year with sales not expected to end the year with more than a two per cent decline. That means sales will be relatively strong compared to the five-year average because sales of four-wheel drives grew more than 40 per cent in 2023.

“Farms are now looking to upgrade their aging four-wheel drive tractors,” says the FCC report.

“So even with inventory levels expected to improve by the end of the year, sale volumes are expected to trend above the five-year average.”

However, the report cautions that possible drought conditions in the West and a declining Canadian dollar exchange rate could throw a wrench into those projections.