In our latest newscast we get an update on the chances of Section 179 and Bonus Depreciation being renewed for this year, talk with the creator of a new video support mobile app that allows dealers to communicate with farmers in real-time, dive into Deere’s fourth quarter results and outlook for 2016, examine a warning given to farmers about leasing equipment and look at Titan Machinery’s third quarter results.
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We have a slight branding change you’ll see starting in today’s episode. With our acquisition of Implement & Tractor from Farm Journal Media this summer, we’ll be revisiting relevant history through the Implement & Tractor brand here and in our print publications, including the popular archive item at the end of this program.
Section 179 Update
Back in May during the Equipment Dealers Assn. Fly-In in Washington, D.C., it sounded as if some action on the Tax Extender Bill could happen by September. But, here we are in December and once again Section 179 and Bonus Depreciation are still in limbo.
If the Tax Extended Bill is not passed, the 2015 deduction limit would stay at $25,000 and Bonus Depreciation will not be available at all.
In November, Natalie Higgins, the vice president of government relations for EDA, Nick Sinner of the Minnesota South Dakota Equipment Dealers Association and Will Rogers of the Iowa Nebraska Equipment Dealers Association, paid another visit to Capitol Hill, meeting with members of the Senate Finance Committee and several members of the House.
According to EDA, lawmakers for the most part were supportive of the tax provisions and were confident that Section 179 and Bonus Depreciation would be passed as part of an Omnibus Tax Bill on or around December 11.
EDA says the general sense was that if the provisions were extended beyond 2015, it would only include calendar year 2016. The reason being that Congress would like to take on broad-scale tax reform in 2017 after the presidential election.
Complicating the issue, President Obama has said he would veto any bill with a permanent extension of Section 179 and Bonus Depreciation that did not also include a number of additional tax cuts for individuals. These personal tax cuts may be a “deal breaker” for some lawmakers, the association says.
Dealers on the Move
Dealers on the Move this week include Champlain Valley Equipment and Tingley’s Harvest Center.
Kubota, New Holland and Case IH dealer Champlain Valley Equipment has begun construction on its new Derby, Vt., location, which will replace the dealership’s current Derby location.
New Telematic Tool Launched
As fall harvest winds down in many parts of North America, many precision specialists likely spent as much of the season in the cab of their service trucks as in the cab of a tractor or combine troubleshooting technology problems.
Efficiency is an objective for specialists, although not always an attainable one this time of year. But remote support platforms are emerging as an alternative to racking up mileage on service trucks.
Precision Farming Dealer’s 2015 Benchmark Study revealed that more than 66% of survey respondents offer remote service, compared to about 56% the year prior.
While telematics is on the rise as a precision ag tool for dealers, one of the challenges to adoption is convincing farmers that it’s as effective as an on-farm visit.
One company is seeking to combine the comfort of face-to-face interaction with the convenience of remote service. Iowa-based AgriSync recently launched a mobile app that allows retailers and farmers to visually communicate remotely in a real-time video support session.
The platform is designed to complement some of the telematic offerings dealers are already utilizing to diagnose problems on in-cab displays, according to company founder Casey Niemann.
But he also expects that remote service will become increasingly mobile and visual allowing dealers to provide more in-depth service.
“As we go forward, be it equipment optimization, interpreting maps, agronomy issues, UAVs or remote sensing, are going to have a whole set of issues. All of these things are visual support needs. I need less of a wrench and I need an expert set of eyes to see what I see and help me walk through that perspective. So again, our focus is on the human element and that’s one of the ways we’re unique.”
AgriSync is still in being beta tested with 4 participants, according to Niemann, but he hopes to expand the roster of participants to include farm equipment dealers and other retailers in the coming months.
Deere Results & Forecast
Deere & Co. announced on Nov. 25 that fourth quarter sales were down 25%. For the full year, sales were down 20%. Despite the drops, 2015 was Deere’s sixth best year ever in terms of net sales, according to Susan Karlix, manager of investor communications.
On the Agriculture & Turf side, sales for both the quarter and the full year were down 25%.
Looking ahead, Deere’s outlook for 2016 Ag & Turf is for net sales to be down 8%. However, in the U.S. and Canada, the company expects ag sales to be down as much as 25% and South American ag is expected to be down 10-15%. Deere’s 2016 outlook for EU 28 and Asian ag is slightly better at flat to down 5% and flat to down slightly, respectively.
On a positive note, Deere’s outlook for U.S. and Canadian turf and utility equipment is for sales to be flat to up 5%.
Overall, Deere is anticipating first quarter consolidated 2016 sales to be down 11% vs. the first quarter of 2015 and for fiscal year 2016 sales to be down 7% vs. this year.
Farmers Warned to Avoid Leases
As the farm economy has softened, leasing equipment has become an attractive option for many farmers. The option can be appealing to dealers as well.
During Deere’s fourth quarter conference call, Susan Karlix, manager of investor communications, mentioned that leasing is becoming a more attractive option for many of their customers. She cites an uncertain business environment coupled with a lack of confidence and clarity in tax incentives as reasons farmers may choose to lease equipment.
She says, “Meeting our customers financing preferences continues to be our top priority. We monitor the leasing portfolio daily, taking necessary actions to mitigate risk and expect to continue to see strength in our used equipment values.”
However, farmers are now being warned that the advantages to leasing depend upon the farmer’s individual needs and financial situation.
While most financial institutions list taxes as the top reason farmers should lease rather than buy, Tina Barrett, the executive director of Nebraska Farm Business at the University of Nebraska-Lincoln, says taxes top her list of reasons against leasing.
One of the main reasons Barrett cautions farmers about leases is the tax liabilities involved with trade-ins. She says, even if a dealer allows a trade-in of the farmer’s tractor for the lease on a new one, it is not a qualified like-kind exchange because the farmer doesn’t own the new one.
She offers this example. If a tractor has a fair market value of $100,000 and $0 basis, assuming the farmer has used all the allowable depreciation, there is a $100,000 gain, which could result in a $20,000 or higher tax hill.
Titan Machinery Reports Q3 Results
Case IH dealer Titan Machinery announced its third quarter results on December 3.
Ag equipment sales for the third quarter were down 38.1%, while total sales were down 30% vs. the third quarter of 2015.
Looking ahead, Titan is forecasting ag same store sales to be down 28-33% for fiscal year 2016. Construction same store sales are expected to be down 8-13% and international same store sales to be down 5%. The dealership is forecasting equipment margins of 7.7-8.3%
Implement & Tractor Archives
With the disadvantages of steel track crawler tractors mounting when compared to the increasingly popular four-wheel drive tractors, sales of crawler tractors fell sharply from the 1950s onward. But, in 1987 Caterpillar introduced steel-reinforced rubber tracks on its Challenger 65 tractors that completely changed the game. Caterpillar’s new rubber tracks, which they called the Mobil-trac system, retained the traditional tracklayer benefits, but could also be used on roads and produced lower noise levels.
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