May 6, 2019 by Scott Garvey

Winter is coming, again!

U.S. tariffs are adding millions to the cost of equipment manufacturing, while falling commodity prices are hampering farmers’ ability to buy any of it, putting manufacturers in a tough spot.

I haven’t been bold enough yet this year to put my winter jacket away for the season, even though we’re now well into May. Our daytime high temperatures have been consistently below the yearly averages now for months. So I don’t think we can say winter has truly left us yet.

But an article I read recently suggested that aside from the season, we may be in for another type of winter in the near future, a global economic one. The author used that exact phrase to describe it. That is far more chilling than the snow flurries drifting past my office window today. For a country like Canada that depends on global trade, and especially for Canadian farmers whose incomes ride the waves of global commodity prices, it’s particularly bad news.

The primary reason behind such a gloomy forecast is the U.S.-China trade war, with the high probability that even if the two countries reach an agreement, their relationship will continue to be frosty and may decline further over time. Several economists have already cited that spat as the cause of a decline in global GDP, and the affects could continue to grow. In addition, geopolitical disagreements, particularly in the area of the South China Sea, will not add to the prospects for a long-lasting harmony between them.

The immediate result, however, is U.S. tariff barriers and those imposed as retaliation are threatening to force major changes to how the world does business.

Fuelling that further is the announcement (via Twitter, of course) that the U.S. will increase tariffs on more Chinese goods on Friday. That could just be more empty bluster from a blowhard president, but it might not be. Either way, it has given global markets the jitters again, with most markets showing downturns on Monday.

AEM, the association that represents the major farm equipment brands has repeatedly spoken out about the tariffs imposed on steel and aluminum going into the U.S. and the affect that is having on manufacturing costs. Reuters reports John Deere expects to see its manufacturing costs rise by U.S.$ 100 million this year. AEM estimates that for the next decade, the cost of farm equipment will continue to rise on the order of five to seven percent annually as a result.

Then there is the fact that farm commodity prices are falling. Economists say it’s partly the result of the market nearing the end of a price bubble. It’s also due in large part to China’s reduced purchases that have hurt the bottom line of all North American farmers. Consequently, AEM estimates the amount of capital available to U.S. producers, who buy the bulk of North American-built farm machinery, is down 25 per cent from last year.

Overall, though, the major manufacturers are reasonably optimistic about 2019 sales volumes, but beyond that their optimism is fading.

It’s hard to say how this game of chicken between the U.S. and China will play out. Add to that the actions China has taken directly against us over the Hauwei affair, and the future gets a little hard to predict.

What can be said for Canadian farmers at the moment is it all adds up to lower commodity prices, higher machinery costs and a lot of uncertainty as the economic world order we’ve enjoyed so far seems poised for a major change.

 

Scott

Scott Garvey

Scott Garvey


Grainews' machinery editor Scott Garvey follows trends and innovation in equipment technology, takes a look at new farm machinery offerings, tracks their performance and goes into the workshop to find better ways to keep them up and running.


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