In this week’s episode, we look at the second quarter earnings reports for several dealers and manufacturers, including AGCO, Rocky Mountain Dealerships and CNH Industrial. In the Technology Corner, Jack Zemlicka shares how transitioning to smaller, autonomous implements will require a substantial shift for manufacturers and dealers, with cost-savings being the driving factor. We also discuss the rising Ag Economy Barometer, bringing a more optimistic perspective on farmland values and influencing decisions on large equipment. Also, in this episode, we break down the 2019 Market Facilitation Program, and we discuss the on-going battle over North Dakota’s ‘Dealers Bill of Rights’.
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Second quarter earnings reports from ag equipment dealers and manufacturers in the past 2 weeks indicates that it continues to be tough sledding for the farm machinery segment of the business.
RME’s Sales Slide 36% in 2Q
Rocky Mountain Dealerships (RME), Canada’s largest agriculture equipment dealership group, reported its second quarter 2019 sales fell by nearly 36% compared to the same period a year ago. Sales for the first half of the year were down by nearly 29%.
New equipment sales during the period declined by nearly 43%, used equipment was off 30%. The group saw small increases in parts and service sales. RME also reported margin improvement in the second quarter of 2.7%, up to 15.3% from 12.6% in the second quarter of 2018.
According to RME, once seeding was completed in the late April, early May timeframe, market sentiment turned sharply negative as a result of broad macro-economic and political uncertainty coupled with significantly reduced sales across all departments. The arrival of spring rains in late June improved sentiment, but these macro uncertainties persisted and continued to weigh on farmer sentiment.
Among the other issues confronting the Canadian farm equipment dealership group,
in the spring of 2019, China announced they would no longer purchase Canadian canola and later added pork. India has increased its tariffs on Canadian lentil imports and last August Saudi Arabia stopped buying Canadian wheat and barley.
The company said, “This political and macroeconomic uncertainty in turn has weighed on industry sales, which is validated by reports that deliveries of new agriculture units in the Canadian marketplace continued to decline in the second quarter indicating persistent, weak demand.”
AGCO’s 2Q Sales Drop 4.5%
On July 30, AGCO reported its second quarter sales fell 4.5% vs. the same period of 2018. Sales during the first 6 months of the year were down by nearly 3%. At the same time, the company saw a solid margin increase during the quarter. Gross margins rose to 23.2%, up from the prior year’s second quarter’s 22%.
AGCO sales declined in each of its worldwide regions except for North America. For the 3 months ended June 30, sales in the U.S. and Canada were up by 3.1%. North American sales for the first half of 2019 were up by about 1%. The company said that increased sales of application equipment, as well as high horsepower and compact tractors, were partially offset by lower sales of utility tractors.
AGCO says global industry demand in 2019 is expected to be consistent with 2018 levels. The company’s net sales for 2019 are projected to be flat compared to 2018 at approximately $9.4 billion, reflecting positive pricing, higher sales volumes offset by unfavorable impact of foreign currency translation.
CNHI’s 2Q Ag Sales Fall 7%
CNH Industrial, maker of Case IH and New Holland farm machinery, reported it second quarter results on Aug. 1. The company’s consolidated sales were down 6% compared with the same period of 2018.
Agriculture’s net sales decreased 7% in the second quarter of the year vs. the second quarter of 2018 due to lower sales volume in Europe and the rest of world, partially offset by positive price realization performance across all geographies. The company said it experienced positive net price realization, which was more than offset by unfavorable volume and mix, higher product costs primarily related to increased raw material costs and tariffs, and increased product development spending.
CNH says it expects consolidated revenues to be up 1-2% at constant currency.
Alamo Sales Rise 11%; Acquires Dixie Chopper
Despite sagging sales in its Ag Division, the Alamo Group reported consolidated sales rose by nearly 11% in the second quarter of 2019. For the first half of the year, Alamo’s net sales were up 10.5%.
The group’s Ag Division saw its sales slide 6.6% in the second quarter. During the first half of the year, the company’s ag equipment sales fell by 8%.
On Aug. 5, Alamo announced that it had acquired the assets of the Dixie Chopper business from Textron Outdoor Power Equipment. Dixie Chopper, a manufacturer of zero turn mowers for commercial and residential use, was shuttered by Textron in December 2018. According to Alamo, it will operate the mower manufacturer through its ag division in Gibson City, Ill., where it produces its RhinoAg implement line.
Purdue Barometer: Producer Confidence Soars
Despite the glum second quarter reports coming from farm equipment dealers and manufacturers, according to Purdue University’s Ag Economy Barometer, farmer confidence is flying high.
Ag producer sentiment in July improved dramatically as the Ag Economy Barometer increased 27 points compared to June and was up 52 points compared to May. The sentiment shift since May 2019 was the largest 2 month swing in the barometer since data collection began in fall 2015. This month’s large rise in the barometer was motivated mostly by a better perspective on current conditions as the Current Conditions Index rose 44 points compared to June.
The shift in sentiment carried over into producers having a more optimistic perspective on farmland values and whether or not now is a good time to make large investments in their farming operations.
The Large Farm Investment Index jumped 25 points in July to a reading of 67 vs. 42 a month earlier. Compared to May, the index improved by 30 points, which was the largest 2 month improvement in the index since data collection began in fall 2015. The increase in the investment index pushed it above where it was at the start of this year and was actually the highest reading for the index since February 2018.
Dealers on the Move
This weeks’ Dealer on the Move is Greenway Equipment. The John Deere dealer is opening its newest location in Marked Tree, Arkansas. The new building has become Greenway’s 28th location.
Technology Corner: Sizing Down Autonomous Opportunities
Much has been made of autonomous advancements in the ag industry during the last few years, as a possible pathway to increased field efficiencies and a solution to labor shortages.
But transitioning from high-horsepower tractors to smaller, robotic implements will require a substantial shift for manufacturers and dealers, says Dr. Scott Shearer, chair of the Food, Agricultural and Biological Engineering Dept. at Ohio State University.
A driver of this change to driverless ag machinery will be a realization of cost savings for farmers and their operators, Shearer says.
“We watch this race to get to the biggest, highest horsepower tractor in some respects. I go to the manufacturer and say ‘Why do you build such big tractors?’ And they go ‘Well Dr. Shearer, because farmers buy them.’ So I asked farmers, ‘Why are you buying such big tractors?’ And they go ‘Well, Dr. Shearer, the manufacturers build them.’ The one thing that’s inherent in all that is there is a human operator on that piece of equipment. All of a sudden we remove that human operator from that environment, and first of all, we cheapen up that environment. We go from $1,000 in engine horsepower for a tractor, to probably down to 600 or 700. We don’t need the cab, don’t need the high intense discharge lighting, don’t need the air suspension seat, the leather seat or the seat heaters. There’s a lot of things that you take off of that tractor and the form of the tractor changes markedly. But again, it’s a different era.”
Shearer adds that as smaller autonomous equipment is developed, dealers should expect a different service model for keeping that machinery functional on customers’ farms.
Understanding the 2019 Market Facilitation Program
According to the University of Illinois, earlier this month, the USDA released the details for the 2019 Market Facilitation Program, or “MFP,” that was announced earlier in May. The MFP is designed to aid producers dealing with the price impacts of trade disputes and was announced following a series of tariff hikes between China and the U.S. Compared to the 2018 MFP, the 2019 MFP will pay on more crops and have higher payment rates per acre.
The MFP will be divided into two types of payments: planted acres in eligible crops and prevented plant acres with eligible cover crops. Payment rates on planted acres range from the minimum of $15 per acre all the way up to $151, with higher payment areas concentrated around Georgia, Alabama, Mississippi and Texas. Prevent plant acres will receive $15 per acre in all counties, provided that the acres meet crop insurance requirements.
A poll from Ag Equipment Intelligence’s sister publication Farm Equipment found that, of those surveyed, 33% found the new 2019 MFP only contributes to chatter among ag equipment customers, while 27% said that the MFP increased the likelihood of customers moving ahead with an equipment purchase in 2019.
‘Dealer Bill of Rights,’ Federal Court Favors Manufacturers
According to the Aug. 2 Jamestown Sun, a federal appeals court sided with the Assn. of Equipment Manufacturers and several farm equipment manufacturers on North Dakota’s Senate Bill 2289, issuing a preliminary injunction to temporarily stop the bill’s enforcement. Referred to as the ‘Dealer Bill of Rights’ by the Pioneer Equipment Dealer’s Assn., Senate Bill 2289, according to the North Dakota Legislative Branch, attempts to amend statutes “relating to prohibited practices under farm equipment dealership contracts.”
In response to the bill’s passing in 2017, AEM and supporting manufacturers filed a lawsuit attempting to halt progress of the bill, which AEM says would hurt farm equipment manufacturers' ability "to enforce new and existing contracts with dealers,” as well as “maintain their federally protected trademark rights.” The Pioneer Equipment Dealer’s Assn. supported the bill, saying that, “the bill enhances existing law and also addresses several manufacturer contract issues that would create numerous challenges for dealers.”
We spoke with Matthew Larsgaard of the Pioneer Equipment Dealers Assn. to get his thoughts on the court’s decision. In a statement, Larsgaard said,
“…it is important to understand that the 8th Circuit’s decision pertains ONLY to the application, or effective date, of the law…nothing else. The next step is that the district court judge will consider the remaining constitutional challenges to SB 2289 (the dormant commerce clause, the Lanham Act and the Robinson-Patman Act). We do not expect the case to go to trial as the facts are largely undisputed.”
Implement & Tractor Archives
According to the book Ford Tractors by Robert N. Pripps, in 1917, Henry Ford gave the generous gift of the patent rights to his Fordson tractor to the British government to help with their food supply shortage during World War I, in addition to setting up a factory in England for the manufacturing of these tractors, under the control of a Ford British subsidiary. Ford also refused to take any of the profits from the factory for himself.
This gift would ultimately come back to bite Ford, however, following his famous 1938 handshake agreement with Harry Ferguson, in which they agreed to create a joint venture tractor, the Ford-Ferguson 9N, at the Ford British factory. Ford, however, having given up control of the factory as a gesture to the British government, was legally unable to enforce manufacturing of these tractors with the subsidiary, who refused to cooperate. This ultimately led to a falling out between the two men and bitter competition that sparked the creation of two Ferguson tractors: the TE-20 and TO-20.
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