With farm machinery sales flat, parts and service costs go up

By Tim Kalinowski, Staff Writer

According to Farm Credit Canada (FCC) the price of farm machinery has appreciated by 55 per cent in Alberta and 58 per cent in Saskatchewan since 1999. Not that most farmers don’t already know it; all they have to do is look at their equipment bills and bank loans to understand the truth of these statistics. However, these are useful figures to begin the conversation about rising costs of parts and higher service charges in these two provinces.

“I think it is fair to say there is a link between the rising costs of the machines themselves and the rising costs of the parts,” confirms Leigh Anderson, Senior Agricultural Analyst at FCC. “The agriculture industry has been doing well over the last quite a few number of years now… And it really comes down to how well the farmers are doing, and the kind of buying power they feel they have. When the agriculture sector does well the price of inputs, including parts, will rise.”

Rising costs of farm machines by natural appreciation is not enough alone to explain why part prices have generally been rising, says Anderson.

“The part costs will also be impacted by the Canadian dollar itself as well as general supply and demand,” he says. “ Farmers are also demanding new technologies. And that also might explain some of the price increases we have been seeing; if there is more technology in these machines.”

Another factor says Anderson, and a fact which surprised him when he began researching the farm equipment market for an in depth study last year, is sales of larger farm equipment, (such as large tractors and combines), have generally been flat the past five years despite record high prices for some crops. So it may also be a matter of some dealers trying to make up their margins from generally poor machine sales in a different aspect of their business.

“We are coming out of a five year period of exceptionally rough sales,” confirms Anderson. “That was surprising to me when I looked at the data. But you have to keep it in perspective. There has been a bit of a slowdown, but, overall, we are still above the long-term average.”

And parts costs themselves might not be as bad as generally perceived. It is true prices have been rising in some areas the past two years, but in terms of an historical perspective the Statistics and Data Development Branch, Economics and Competitiveness Division, of Alberta Agriculture and Forestry still shows only marginal increases the past five years; with a fair amount of yo-yoing up and down during that period.

While it is true service and maintenance charges have risen constantly, (up about 20 per cent from five years ago), the cost of truck tires, by comparison, decreased from an average of about $320 a tire five years ago down to a low of $280 in 2014 to a price of about $300 in April of this year.

But certain parts could definitely still sting you. V-belts, for example, have spiked sharply in 2016 rising to nearly $16 on average from a low of $13 last year. In these cases, says Anderson, farmers are typically smart buyers and know how to take advantage of a deal when they see one.

“Generally farmers watch for parts deals and the may stockpile those parts they use on a regular basis, stuff like bearings, belts, oil filters, or anything they might use in the next year or 18 months. That’s probably a good management strategy if you are worried about the prices,” states Anderson.

Implement companies, like the farmers they service, are also tied deeply to the market cycle.

“One of the main drivers of prices is if we see weakening in crop prices. If those prices weaken then we often do see a drop in the price of farm equipment and weaker sales,” confirms Anderson.

Producers interested in comparing the statistics for themselves can visit the Alberta Agriculture and Forestry Statistics and Data Development website at http://www.agric.gov.ab.ca/app21/farminputprices.