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Drop in Brazil farm machinery sales accelerates

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The rate of decline in farm machinery sales in Brazil nudged higher last month, fuelled by the decline in commodity prices which has dented trade in larger agricultural equipment in other markets too.

Sales of agricultural machinery in South America's top farm economy came in at 5,398 units in June, down 21% year on year, according to Fenabrave, the country's vehicle distributors' association.

The decline lifted to 19.8% the overall pace of decline in the first half of 2014, on a year on year basis.

And it signalled that there may be more to the market decline than a series of one-off factors blamed for sales losses earlier in the year.

These factors included a 45-day delay in government funding for a popular programme offering low interest rates for the purchase of farm equipment, with the drought early this year seen as dissuading many farmers from machinery purchases too.

'Farmers cautious'

However, an "overriding factor" for the market during the first half of the year "has also been declining commodity prices", said Michael Cordonnier, at Soybean and Corn Advisor.

"Prices for soybeans and corn are now in a downturn and not expected to improve any time soon," he said, adding that values were "approaching" the cost of production in Mato Grosso, a key producing state for both crops.

"Continued low prices are going to make Brazilian farmers cautious in the equipment purchases. If commodity prices continue to decline, it is going to be hard to recuperate sales," Dr Cordonnier said.

In corn, for instance, prices in the major growing state of Paranagua fell by 7.6% last month, while those in Goiás dropped 11%, and in Mato Grosso do Sul tumbled by more than 20%, according to research institute Cepea.

Football factor?

The major remaining hope for one-off factors fuelling the drop in Brazilian machinery sales last month would be that June marked the start of the World Cup, which has been seen as disrupting a range of businesses.

Nonetheless, a drop in farm equipment sales would tally with markets in other countries.

US sales of four-wheel drive tractors were 22% lower year on year last month and combine sales down 24%, the Association of Equipment Manufacturers said last week.

Canadian sales of four-wheel drive tractors fell by 34%, and of combines by 31%, although in both countries volumes of smaller tractors rose, underpinned by the boost provided by low grain prices to livestock producers.

Agco, the maker of Massey Ferguson and Fendt farm machinery, sees the South American ag market declining by 10-15% in 2014.

By Agrimoney.com

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