Wheels of fortune Ag equipment manufacturers, dealers experience growth spurt
Cassandra Kyle The StarPhoenix
Friday, February 01, 2008
It takes thousands of bushels of wheat to buy a brand new piece of farm equipment, but these days Saskatchewan's producers are readily cashing in crops for machinery.
Equipment dealers say the cyclical agriculture industry is rolling toward a peak not reached since the mid-1970s. Strong commodity prices and a sustainable outlook are creating unusual conditions for farmers seeking new machines.
Burke Moody, president of Moody's Equipment Ltd. in Saskatoon, says equipment related to grain farming, such as tractors and combines, are top sellers this year despite price tags that can run several hundred thousand dollars. In fact, demand for new equipment is so strong that farmers who haven't yet ordered their machines for the 2008 season are likely out of luck.
"People are just finding out that all of a sudden there isn't enough stuff to go around. Lots of times farmers don't really believe, nobody believes, until it really happens," said Moody, who hasn't seen sales this strong since 1975. "Unless our manufacturers can ramp up production, I don't know that we're going to sell much more because we can't get it."
The ag-equipment veteran said it's nice to see farmers making a profit again. With a growing global demand for food and acre requirements on the rise for biofuel products, the potential for long-term sustainability is there, he said.
If the good times continue, producers are going to have to start planning their equipment purchases sooner, although Mood says most farmers are aware of that.
"They just can't walk in the day before they go seeding and buy a new drill that's not there," he said. "As these farmers get bigger, they're better business people.
"They spend more time and effort on planning their farming operation, which includes replacing equipment."
Chad Davidge, sales manager at the John Deere dealership Farm and Garden Centre of Saskatoon Ltd., says last year's crop and recent prices brought a major change in attitude about the future.
"The stars are aligning for a lot of farmers," Davidge said. "Either that or they're taking a lot more risk in their farm just for the fact that grain prices are higher and they're anticipating greater cash flow revenue through their farming operations."
Manufacturers benefit
The market is strong for agricultural equipment manufacturers in Saskatchewan, but meeting demand can pose problems in production plants. Area manufacturers are advertising heavily about career opportunities with their companies and many have enough work to last them through the rest of the year and beyond.
Adding to North American demand for farm equipment is a call from Eastern Europe for the same products, moving manufacturers toward an industry peak, says George McKay, general manager of Highline Manufacturing Ltd., in Vonda and international sales manager for St. Brieux-based Bourgault Industries.
"Agriculture peaks and valleys and it has very sharp spikes in it," he said. "It's good that it's great today, but there will come a time that it will adjust itself again."
Producers are buying larger and more expensive pieces of equipment to compensate for a lack of employees on the farm, McKay explained.
"Farmers are tremendous people," McKay said. "When a farmer has some dollars after he's looked after his necessities and his family, the one place he'll spend it is on equipment.
"He wants to mechanize and automate his farm, and we're leaders in that respect."
The strength of the Canadian dollar is adding to the pressure on manufacturers here, but the steady orders for product is helping balance higher production costs, said Doug Warrener, the Saskatoon-based regional sales director for New Holland Agriculture. Saskatoon is the home manufacturing headquarters for New Holland's tillage and seeding equipment lines sold throughout North America.
"There's an offset when the cash-crop industry is so strong," Warrener said about the situation. "The volume is there to keep the plants very busy, but on the other hand it puts pressure on the margins because the Canadian dollar was more favourable for exporting when it was down to about 80 or 85 cents."
Strong used market
With an injection of new agricultural equipment into dealerships and onto Saskatchewan farms, older models have to go somewhere. If they're not traded in for a new model and sold through the dealership, many end up on the auction block.
In April 2007, Ritchie Bros. Auctioneers held a record-breaking $14 million unreserved farm equipment auction at its new Saskatoon facility, selling more than 3,000 pieces. Inventory is arriving for the facility's next large equipment auction in April. Kevin Tink, a senior vice-president with the company in Canada, said it's difficult to say whether the 2008 spring auction will again be record-breaking, but demand for good, used farm equipment is definitely on the rise.
"In most categories, particularly harvest equipment, tractors and late-model seeding equipment, we're going to see very strong demand," he said from his office in Grande Prairie, Alta. "Many of the manufacturers are unable to deliver new product for timelines of six, seven, eight months, (and that) forces a direction alternative to the good used (equipment)."
Producers who have been in the business for a while are finding now is a good time to retire and their equipment is often a top seller at auctions because it is so well cared for, Tink explained.
High commodity prices mean sellers are in a good position to get top dollar for their old equipment.
Inventory levels for both new and used farm equipment have dropped significantly since the late 1990s, said John Schmeiser, executive vice-president of the Calgary-based Canada West Equipment Dealers' Association. Nevertheless, he said the local farm equipment dealership's place in the community remains important.
"When our farm equipment dealers do well that usually means lots of employment in those communities and the community does well," Schmeiser said, adding the average dealer in Saskatchewan employs 25 people.
There are big challenges for equipment dealers. A lack of employees, especially equipment technicians, puts pressure on the companies to serve their customers. Schmeiser said the big topic at the dealers' recent convention was the need to adopt better management practices so dealers can sustain themselves when the economy turns down a bit.
While the association hopes for a sustained ag economy for the next five years, it is enjoying the upswing.
"Saskatchewan's economy is pretty diverse right now, but agriculture and the role that we play and our customers play is still fairly significant," he said. "I believe that part of the reason rural Saskatchewan is doing so well right now is because farmers are doing well, farm equipment dealers are doing well, farm equipment manufacturers are doing well.
