Economists consider sales of tractors and other machinery an economic bellwether, so a big fall is a worrying indicator.
Dropping tractor sales indicate regional economies could be in for a rough ride, as farmers tighten their belt.
Sales of tractors and farm machinery have fallen off significantly from 2022 highs, according to the Tractor and Machinery Association.
Since the start of 2023, the number of tractors sold was down by a quarter, with notable drops in the horticulture, dairying and lifestyle markets.
In global markets, the performance of large tractor and machinery producers such as NYSE-listed Caterpillar and John Deere are considered economic bellwethers; if the industries their products enable are doing well, they do well.
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Craigs Investment Partners investment director Mark Lister said the same bellwether approach could be taken when looking at New Zealand tractor sales.
Lister said the decline wasn‘t surprising considering agricultural headwinds. The global dairy price is about 35 percent off the 15-year high it hit in March 2021, and the sector is expecting a lower Fonterra payout.
“I think farmers are probably just feeling a little bit more downbeat than they were a year ago. They've watched global prices trending down from those highs for the best part of 12 months and they're also facing lots of cost pressures.”
Lister said even if the Fonterra payout landed somewhere considered good historically, it wouldn’t match increased input costs such as fertiliser and fuel.
“The numbers you're seeing are a genuine reflection of a bit of softening in the agricultural sector and the fact that they're facing the same cost pressures, labour shortages and other challenges that many businesses are.”
He said farmers' willingness to spend and confidence was a leading indicator for other parts of the economy.
“It all filters through. There are plenty of parts of the country, towns like Ashburton where a large part of the local economy might be servicing the agricultural sector. If that sector is feeling a little less upbeat and spending falls, it flows through the whole local economy.”
Tractor and Machine Association president Kyle Baxter said the next few months would be more revealing. Looking at tractor sales for the year to date was a small sample period and although there was a fall, it was being compared with strong sales in 2022.
The largest drop was in the number of machines sold into the lifestyle space, which makes up a low dollar value, Baxter says. Still, the higher value tractors for horticulture and livestock were also coming under pressure in terms of buyer confidence.
Confidence
Rabobank senior agricultural analyst Emma Higgins said farmer confidence was low, even dropping below what it was at the onset of the Covid-19 pandemic.
“We're just waiting for our next quarterly results to come through, but at this point we've got readings to suggest New Zealand's farmer confidence has actually plunged to a record low, the lowest in the 20-year history of the survey.”
Reasons included government policy, rising input costs, interest rates and softening commodity prices, Higgins said.
“Really a melting pot really when it comes to additional sources of anxiety, and that's all coming through in confidence levels of farmers generally.”
Low confidence flowed through to intentions for spending, Higgins said.
“Agribusiness is vital to New Zealand's economy and so whether it's in terms of confidence or whether it's in terms of weaker commodity prices and therefore weaker farmgate returns, there does end up being a ripple effect in the sense that farmers contribute a lot in the provincial regions.”
Federated Farmers vice president Wayne Langford said the concern was amplified going into winter, with the fact that the downturn in prices for sheep, beef and dairy was not not being matched by cheaper inputs causing real concern in rural communities.
“As farmers start to tighten their belts, you'll see small towns and other places start to do the same. There will be less money and fewer jobs around.”
