Tractors: world market moving into recovery

This year should show progressive recovery ahead of more substantial gains in 2017 following the decline in sales in 2014 and 2015. The downturn in agricultural income at the world level reduced the investment capabilities of farming enterprises in the year just passed but increases in the prices of some commodities and requests in India and China for additional supplies of cereals and meat should favor the recovery of agricultural prices and lead to demand for machinery

For the world agricultural machinery market 2016 will be a transition year. In the wake of declines experienced in 2014 and 2015, sales should return to growth by a few percentage points in the current year to then display decisive gains in 2017. According to Agrievolution, the organization of the leading agricultural machinery manufacturers around the world which monitors sales in all the major countries, the percentages for the tractor market dipped by 3% by the end of 2014 and a further drop is expected to be reported for 2015. Declines in sales have been, in fact, disclosed for all the major markets. Agrievolution data made public for a picture of conditions over the first nine months of the year show that by the end of September, a total of 300,000 tractors had been registered in India, down 33% compared to the previous year; 159,000 tractors in the United States led to a 1% decline; Brazil disclosed 30,000 tractors sold for a 28% plunge; 17,000 in Russia showed a steep 41% drop.

In Western Europe, data on the first eight months of the year, January through August, pointed to a total of 109,000 units, minus 7% compared to 117,000 moved in the same period in 2014. On the other hand, a look at the more general scenario disclosed China on the positive side at plus 10% for the first nine months, and Turkey ahead by 21% by pursuing an expansion cycle over the past few years.

Expected for 2016 is a degree of recovery in sales led by China and India to lead to overall increases of around 5% whereas the forecast for 2017 is for a global market in more substantial growth.

The president of the Italian Agricultural Machinery Manufacturers Federation, Massimo Goldoni, discussing these conditions, said the reason for the future trend is to be found in the dynamics of farm incomes which will influence the investment capabilities of these enterprises leading to the increased willingness of farmers to purchase new machinery and equipment.

The FederUnacoma president pointed out that following the downward trend in 2014, agricultural production prices also declined in the fourth quarter 2015 by 12% under the figure for the same quarter in 2014 resulting, mainly as the result of quotations on cereals and oleaginous crops as well as such raw materials as lumber, rubber and cotton due to excess demand.

Presenting data compiled by Nomisma, Goldoni went on to refer to favorable weather conditions as the factor for the record production of some commodities and agricultural performances especially in Ukraine, Australia and China. This overproduction combined with the availability of substantial stock in storage thanks to great yields in recent years carry the risk of lower prices for the principle commodities into 2016 but there should be slight increases reported for rapeseed, palm oil, cocoa, sugar and rubber.

Other factors to add in are the less favorable trend of the weather in light of the La Niña weather pattern, the difficulties of seeding reported in India which will take the country back to importing commodities and the drop of meat production in China which should set in motion new international trade dynamics to improve income levels of farm products and justify a progressive recovery of the machinery market.

The balance sheets of the Italian industries with strong export records, Goldoni pointed out, depend on foreign markets. The earnings crisis produced a decline of 8.2% in tractor exports in 2014 and a 8.6% drop in the first ten months of 2015. The European market trend carries substantial weight for these exports as Italy’s major export market in the sector.

Especially France, which experienced a 20% decline in 2014 and closed 2015 with a marginal gain of only 1% with 29,000 units registered, and Germany with a market 7% with 34,600 machines registered by the end of the year.  The recovery of profitability in the primary sector should lead to a continental market upturn carrying benefits also for the Italian industry.