Fabio Ferraresi directs PSR new business development efforts in South America. Today, he discusses the outlook for Ag Equipment Production in Brazil. Production in the first quarter of 2021 was the best since 2013 and he sees annual growth of about 25% moving forward.
Transcript
Welcome to the PSR PowerTALK podcast, produced by Power Systems Research.
00:06 Joe Delmont:
From Power Systems Research I’m Joe Delmont, editor of PSR PowerTALK. Today we’re talking with Fabio Ferraresi about the outlook for ag equipment production in Brazil.
Fabio directs our business development efforts in South America.
Fabio, you and your team in Brazil produce five-year production forecasts each quarter for several industry segments. What’s happening so far this year in Ag equipment production in Brazil?
00:39 Fabio Ferraresi:
Agricultural equipment production is doing very well. In fact, we saw the best first quarter since 2013. Ag production in the first quarter was 21,100 units in the first quarter versus 15,150 units produced in the same quarter of 2020.
01:03 Joe Delmont:
That’s an increase of almost 6,000 units, or 39%.
01:10 Fabio Ferraresi:
Yes, and remember we didn’t have the effects of COVID-19 in the first quarter of 2020. This good start confirms our forecast for 2021.
01:23 Joe Delmont:
What were the key drivers in the first quarter this year, especially considering the industry had to deal with COVID?
01:30 Fabio Ferraresi:
You know the agricultural production is going well. The I mean, the crops and, and because of we have to feed people and, and, the, the farmers are confident the price of the commodities are high, the exchange rate is favorable for production in Brazil, and they, they, are investing on the production to increase the production and the productivity, uhm, and we, we had more working days in the first quarter of 2021 then in 2020. So, All-in-all, we see a positive scenario for this increase in the first quarter.
02:13 Joe Delmont:
Well, well that’s, that’s positive. Very positive. What’s your forecast moving forward?
02:19 Fabio Ferraresi:
Well, while the OEMs are saying about a 10% to 20% forecast, our forecast nowadays is in the 25% growth range. This is less than we are seeing now in the 1st quarter.
In 2020, we had fewer working days because usually we have the summer break stop in Brazil and we have Carnival stop. This year we didn’t have; so, the OEMs went producing these periods and it’s partially explained increase over our forecast. This should be a little lower in in the rest of the year.
03:01 Joe Delmont:
Fabio, agriculture equipment sales are affected by seasonality and weather. Is the growth we are seeing this year temporary, a bubble, or is it really sustainable?
03:16 Fabio Ferraresi:
That’s a tricky question because there are two types of agriculture equipment. Small tractors, used by families and larger equipment, used for business focuses operations.
Sales of equipment like small tractors are related to what we call family agriculture and more affected by seasonality. The acquisition or replacement of this equipment happens occasionally when an opportunity comes, but it’s not directly related to business growth or economic sector growth.
Bigger equipment and dedicated commercial equipment, like sprayers, harvesters, are more directly related to the growth of the planted area or the crops forecast the harvest forecast; so, it’s more stable and predictable. And they have determined durability because of the more predictable life cycle.
These reflect projections for growth of planted areas and increased productivity, so oscillations may happen, but at the long term we see a sustainable world.
04:26 Joe Delmont:
OK.
Describe the market over the last 10 years.
How do you see it performing in the next several years? What kind of trends are you seeing?
04:36 Fabio Ferraresi:
You know we had a peak of production in 2013 with 91,000 units produced in Brazil. That was driven by excess of incentives and low interest rates, sometimes below inflation. That caused an, uh, surplus inventory with the farmers and the producers.
With the economy downturn from 2014 through 16 we had a decrease of production reaching 57,000 units in 16. We had an increase again in 17 and 18, reaching over 70,000 units in 18. But it dropped again in 19 in, to 60,000 units and it stayed the same level for 2020.
This year forecast is more than 74,000 units. And by 2025 we expect to read the same levels as we did in 2013, at the range of 90,000 units.
05:40 Joe Delmont:
Fabio, talk about how technology is affecting the ag market, what’s going on there?
05:46 Fabio Ferraresi:
You know, although those dirty equipment doesn’t look high tech, it’s a very high tech segment.
I remember my first visit to an agricultural equipment show in 2000. We already had autonomous driving in technology. At that time, Harvester used the GPS positioning data that tractors used for seeding to produce the path during the harvesting.
06:13 Joe Delmont:
What’s uhm, what’s pushing the development of ag technology?
06:17 Fabio Ferraresi:
The big driver for technology is productivity. Farmers are businessmen and they are always looking for new ways to produce more with less. Technology that allows farmers to produce more with less at lower costs will bring sales for OEM.
So, we see fuel consumption as important matter, light and resistant materials, like carbon fiber for sprayers armed to increase the range of the equipment, and electronic controls for seeding to increase the productivity of, of, of the crops. These and other features that assure higher crops productivity will be popular.
06:56 Joe Delmont:
Fabio, what about alternative forms of propulsion?
07:00 Fabio Ferraresi:
Well, definitely there are room for that. However is not so much electric as we see in other segments.
This equipment runs far from the grid and diesel logistic is the best for this equipment now.
In this area, some of the electricity grids are powered by diesel gensets also.
Then, we see many initiatives for farmers to generate biomethane from biomass; either animal, vegetable, or combined. And then they clean the biomethane and use it as source of energy in small farms, even for electricity generation or using small tractors.
We see room for this technology in small tractor in the future; but it still depends on economic feasibility and technology improvement at the biomethane stations efficient and operational feasibility.
07:55 Joe Delmont:
Thank you, Fabio.
We look forward to talking with you again when you have another, uh, new forecast.
This data is pulled from two of the major Power Systems Research databases. EO Link is the database of OEM production and forecast data and EnginLink provides engine production forecasts and specification data.
Look for industry reports every month in the PSR PowerTALK News email report and on this podcast. Contact us for more information on other production forecasts and business intelligence. Ask about detailed annual database subscriptions or snapshot data extracts.
08:40
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