Bumper crops have fattened western Canadian farmers’ wallets but troubling economic signals are making them more likely to buy used tractors than new — or fix what they’ve already got. Source: The Calgary Herald
Two Calgary-based heavy equipment dealership chains reported a significant shift from new to used agricultural equipment sales last year versus 2014 as the strengthening American dollar led to increases in the prices of new US built gear.
Cervus Equipment Corp and Rocky Mountain Dealerships also said they each have reduced staff over the past year by about 100 people, mainly in Alberta and Saskatchewan dealerships, to balance costs as sales in their industrial and construction divisions plunge due to the oil and gas price-driven economic slump.
Graham Drake, president and chief executive of Cervus, pointed out on a conference call that farm net cash income and farm net worth both reached record highs in 2015.
The estimated 2015 crop yield was second only to the record 2013 crop.
Despite the relative wealth, Cervus sales of used agricultural equipment rose 25% to Can$229 million in 2015 while new equipment sales gained only 4% to Can$356 million.
The Canadian dollar rose to nearly US77 cents, the highest since October, and a rebound from below 69 cents in mid- January. It remains far below the peak of nearly 84 cents last May.
“An ideal for us would be a stable number … As the customers look at acquiring large equipment, you can talk combines worth Can$400,000- $500,000 or even trucks at Can$150,000-$200,000, a 1% swing is a significant price effect for a customer,” Mr Drake said.
“So it creates uncertainty, as in, ‘Is this the right time to buy?’”
Cervus has interests in 72 dealerships in Canada, New Zealand, and Australia, representing brands including John Deere farm equipment, Bobcat earth movers and Peterbilt trucks.
The new-to-used sales switch was also noticed at Rocky Mountain Dealerships, which has 37 agriculture and industrial equipment dealership branches in Alberta, Saskatchewan, and Manitoba.
About 95% of its revenue is related to agriculture, with major brands Case IH and New Holland.
It reported used equipment sales increased by 24% to Can$377 million in 2015 versus 2014, while sales of new gear fell 14% to Can$450 million.
“We have seen our equipment sales shift toward used equipment and have also experienced strong product support demand as some customers are electing to repair rather than replace their fleets,” said Garrett Gandin, president and CEO. “We expect a similar mix to persist into 2016.”
Cervus reported revenue of Can $1.13 billion in 2015, up 9% from 2014 and exceeding Can$1 billion for the first time mainly due to Can$245 million from 19 new dealerships acquired in 2014.
It also announced it would cut its quarterly dividend by two-thirds as part of an initiative to reduce debt. Rocky Mountain revenue came in at Can$975 million, up 1%.