European farm machinery sales set to rebound this year

FILE PHOTO: John Deere equipment is seen at a dealership in Taylor, Texas

PARIS (Reuters) – European sales of agricultural machinery look set to rebound in 2017 after a three-year slump as rising demand in Germany and sectors like olive growing offset weakness in France, an industry group said.

Manufacturers, who include U.S. giants Deere & Co. <DE.N> and AGCO <AGCO.N>, saw orders in the European Union reach their highest levels since 2012/13 this month and business sentiment in the European sector is at a five-year high, according to a monthly survey by the CEMA association.

Parts suppliers reported notably healthy orders, typically an early indicator of a pickup in industry activity, CEMA’s Secretary General Ulrich Adam told Reuters.

“The order levels are higher and that usually materializes in sales in the coming months,” Adam said.

While demand in the first quarter remained sluggish, and sales of tractors – the biggest farm machine segment – dropped 1.3 percent from a year earlier, that was better than a 6.7 percent decline for all of 2016, CEMA said.

France, however, “is a big question mark,” Adam said.

France is the biggest crop producer in the EU but suffered the worst grain harvest in three decades last year, which along with market prices, has hurt farmers’ ability to invest in more machinery.

Machines sales in France fell 8 percent last year and CEMA expects them to fall by a similar margin in the first half of this year.

Overall European farm machinery sales fell about 4 percent in 2016 to 24.6 billion euros ($27 bln), according to provisional CEMA estimates. The North American market was also weak as low grain prices hurt farmers’ purchasing power.

Demand in Germany, the EU’s largest machinery market after France, is now picking up and CEMA also expects sales in Britain and Spain to rise this year.

Agricultural sectors like olive and wine growing are supporting demand for smaller tractors, while big farms were investing in large tractors, Adam said. However, slower demand for mid-sized tractors reflects a weak environment for standard crop farms.

While demand in Europe and North America has been week, emerging markets have fared better.

Deere & Co has said it expects its equipment sales to rise this year for the first time in three years, partly driven by improving economic conditions in Brazil and Argentina.

Trading firms that buy, sell and process crops have also seen their margins squeezed by the weak backdrop in crop markets.

(Reporting by Gus Trompiz; Editing by Susan Fenton)