In today’s newscast Michael Boehlje, distinguished professor of agricultural economics at Purdue Univerity, shares his insights on how long the downturn could last, we look at some new world records in ag productivity, plus we take a closer look at third quarter earnings for several companies, including precision equipment manufacturer Raven Industries, as well as Rocky Mountain Dealerships and Cervus Equipment Corp.’s third quarter earnings.
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Amazone, New Holland Claim World Records
I’m managing editor Kim Schmidt, welcome to On the Record. Here’s a look at what’s currently impacting the ag equipment industry.
Ag Entering ‘Long Trough’ Period
Low commodity prices are changing the business conditions farmers and equipment dealers have grown accustomed to over the last several years.
I spoke with Michael Boehlje, distinguished professor of agriculture economics at Purdue University, about how the new business landscape for farmers is going to impact ag equipment dealers.
He says one of the first things that farmers under financial stress do is reduce their capital outlays. On the grain side of the business, he anticipates we’ll see a significant softening of equipment sales, which we’re already starting to see in terms of new equipment sales.
However, he says those in the livestock side of the business will see some strength, which the latest numbers released by the Assn. of Equipment Manufacturers supports. Year to date, U.S. sales for tractors under 40 horsepower are up 9.2% and 40-100 horsepower tractor sales are up 7%
He says, “Those in the livestock sector will be facing the opportunity for some additional sales and those selling to row-crop farmers will find the selling season pretty tough.”
According to Boehlje, agriculture is characterized by a short peak long trough problem — the good times last for a shorter period than the down times. He says the weakening we’ve begun to see will be sticking around for more than just a few years.
"Historically when we’ve had booms and weakness, followed by weaknesses in the agriculture sector they’ve lasted even as long as 10 or more years. Now it doesn’t mean that we’re going to stay with the kind of really very low prices we have right now but it’s not getting back to beans in the mid-teens and $7 corn. We think that, or even $6 corn. We wouldn’t mind having something closer to $5. Prices will be under pressure for more than just a year or two."
Amazone, New Holland Claim World Ag Productivity Records
On a lighter note, Amazone, the German manufacturer of seeding, spraying, spreading and cultivating equipment, and New Holland have both recently set ag productivity records.
Amazone claims two records — the largest area sprayed within 24 hours and the greatest hourly output. The German manufacturer used its 3,170-gallon tandem-axle UX 11200 trailed applicator for the task, along with a 131 foot boom, supported by a vehicle-mounted 264-gallon spray solution tank and 5,550-gallon water bowser.
Spraying volunteer canola at 10 gallons per acre across 15 fields, the Amazone team clocked a total of 2,550 acres in 24 hours at an average of 106 acres an hour. The company says stability was a key factor allowing for speeds of 8-9.5 mph during the day and an impressive 11 mph at night.
New Holland claimed the Guinness Book of World Records wheat harvesting record at H.R. Bourn and Sons Farm in the UK. Using the CR10.90 rotary — the new 653 horsepower flagship of the CR series — New Holland harvested 797.656 metric tons of wheat in just 8 hours, reclaiming the record previously held by Claas, despite fluctuating temperatures and some light rain.
The CR averaged 99.7 metric tons per hour, peaking at 135 metric tons per hour. New Holland broke the previous 8-hour record in just 6 hours, 36 minutes and the combine then went on to thresh another 120 metric tons of grain.
Revenue Declines in Ravens Applied Technology Division
A slowdown in the ag equipment market took its toll on third quarter sales and earnings for Raven Industries, especially in the company’s Applied Technology Division, which includes precision farming products.
On Nov. 20, the Sioux Falls, S.D.-based manufacturer reported a 24% decline in overall sales in its Applied Technology division. Sales during the third quarter of 2014 topped $43 million, compared $33.2 million during the same period this year.
Raven’s President and CEO Daniel Rykhus said as weak commodity prices continue to erode grower sentiment, demand remained subdued for precision agricultural equipment, which contributed to lower than anticipated sales and income for the company.
Rykhus continued on to say that historically, Raven has relied heavily on profit contributions from its Applied Technology Division, which works extremely well when the ag market is in a growth phase.
However, he notes that during prolonged down cycles, like we are in now, Raven’s dependence on that market makes growth for the corporation challenging and underlines the need to build a more diversified sales and income mix, while still maintaining a strong emphasis and commitment to precision agriculture.
Rykhus explained that the company plans to rebalance its profit mix through aggressive growth of Raven’s Engineered Films and Aerostar divisions, while shifting the Applied Technology Division’s percent of total operation profit from 65% to about 50% during the next 2 years.
RME 3Q Ag Sales Decline
Rocky Mountain Dealerships, Case IH’s largest dealer group in Western Canada, reported third quarter results on November 12. The company’s total revenues fell by 15.3% to $230.8 million. Ag sales fell $37.3 million, or 15%, year over year.
However, it wasn’t all bad news for the Canadian CNH dealer group. Ag parts sales for the quarter were up 9% year-to date and service sales rose 20% year-over-year and year-to-date.
After Rocky reported second quarter results in August, analyst Ben Cherniavsky for Raymond James said the company had won “round one” in making a meaningful comeback after several challenging quarters.
In his analysis of the company’s third quarter results, he said, “Following the continued margin progress it reported in the third quarter, we would also give Rocky ‘round two.’ Still, we can’t give them the match until we see a knock-out punch in the form of reduced debt, lower inventories, accelerated earning growth and more meaningful and consistent margin improvements.”
CVL Revenue Rises 15%
Cervus Equipment Corp., one of John Deere’s largest dealer groups, reported third quarter results on November 13. The company’s total revenues grew by 14.8% in the third quarter vs. the same period last year. Revenues from ag sales grew by 13% this quarter vs. 2013 and 7% year-to-date. New equipment sales also grew, up 31% in the third quarter.
Looking at the company’s positive third quarter results, Cherniavsky, who follows Cervus, said, “End markets remain mixed. The outlook for the Commercial, Industrial and Trasportation segment is getting less certain in light of lower commodity prices. The same can be said of the Ag segment, where the markets for wheat, canola and other ag products are under pressure.”
Despite this, Cherniavsky said, “Farm incomes are still relatively strong, as are farmer balance sheets. Also, lower feed prices have helped cattle markets, which is good for Cervus’ Ag business in Alberta. Finally, a lower Canadian dollar bodes well for the newly acquired trucking business in Ontario.
“We are counting on 2015 being a much better year for Cervus as acquisition activity settles down, debt is reduced and the benefits of scale begin to transpire in the form of earnings acceleration,” he said.
And now from the Ag Equipment Archives…
In 1923, the Baldwin Brothers of Nickerson, Kan., develop the first self-propelled “Gleaner” combine, mounted on a Fordson tractor. They decided to use the Gleaner name for their combine based on inspiration from “The Gleaners,” a famous 1857 painting by Jean-François Millet. With the Gleaner name, the brothers meant to evoke a sense that the combine would leave none of the grain behind on a field.
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