Tractor sales hit decade high on record dairy payout, high kiwi

Farmers had more cash this year to buy farm equipment such as tractors after Fonterra paid out a record $8.40 per kilogram of milk solids. Photo / NZ Herald

New Zealand tractor sales hit their highest level in a decade in the third quarter as farmers benefiting from this year's record milk payout and the high local currency bought new equipment.

Tractor registrations rose 8.8 per cent to 925 in the three months through September, from the same quarter a year earlier, according to Land Transport Safety Authority figures published by Statistics NZ.

The three-month period would have captured orders from the NZ National Agricultural Fieldays at Mystery Creek in Hamilton in June, helping tractor registrations rise to their highest since the December 2004 quarter when they reached 970.

Farmers have been increasing their spending on equipment such as tractors, farm bikes, milking machines, irrigators, ploughs and harvesters this year as cash flows were boosted by Fonterra Cooperative Group's record payout to dairy farmers of $8.40 per kilogram of milk solids for the 2013/14 season.

Also helping drive sales was the higher value of the local currency, with the kiwi touching a record 82.03 in July when measured against a basket of major currencies on a trade-weighted basis, reducing the price of imported farm machinery.

"Farmers were particularly cashed up through the middle of the year and around the time of Fieldays they would have been looking pretty hard at some new kit which would have included tractors." ASB Bank rural economist Nathan Penny told BusinessDesk.

"Many of them would have put in orders then and those orders may not have been available to be filled straight away, so they would have come through in the months that followed, so that includes the September quarter.

"Farmers were cashed up after a record season, excellent production and the record milk price and some of them would have been looking to replace their tractors," Penny said. The strong currency in the middle of the year would have helped push up demand, he said.

Still, registrations may pull back from these levels in the fourth quarter and into next year as Fonterra drops its forecast payout for the coming season to reflect lower global milk prices.

Fonterra is scheduled to update its forecast for the coming season next week, with most economists expecting it will cut its current forecast of $5.30/kgMS.

ASB's Penny expects the payout to fall to $4.70kg/MS, which reflects his view that GlobalDairyTrade auction prices won't recover until next year. He lowered his forecast following the last auction two weeks ago when dairy product prices fell to their lowest in more than five years. The next auction will be held overnight.

"We have seen dairy incomes fall quite strongly so we expect that farmers are going to put on hold some capital purchases and defer maintenance" which will flow through into wider regional economies, he said.