In today’s newscast we report on whether the Fed’s announcement will impact farm equipment manufacturers, how the strong U.S. dollar is impacting exports, AgJunction’s recent merger, JCB’s expanding dealer network for ag equipment and worldwide tractor sales.
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JCB Makes Strides in Expanding Ag Dealer Network
I’m managing editor Kim Schmidt, welcome to On the Record. Here’s a look at what’s currently impacting the ag equipment industry.
AFN: $54.17 −3.05
Fed Rules on Interest Rates
The Federal Reserve’s Open Market Committee met this week and dropped the word “patient” from its interest-rate guidance. However, it also scaled back expectations on how quickly it will move on any rate hikes. The first increase may not take place until September now.
Federal Reserve Chairwoman Janet Yellen stressed that just because they “removed the word patient from the statement doesn’t mean they will be impatient.”
The Fed says it would be appropriate to raise rates once “it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.”
We spoke with Nick Yaksich, Vice President of Government & Industry Relations for the Association of Equipment Manufacturers, to find out what this move will mean for equipment manufactures.
He says while manufacturers keep an ear open to what the Fed is doing, he doesn’t expect any sort of knee-jerk reaction to the announcement. The bigger issues for manufacturers, he says, are commodity prices, the uncertainty of the dollar and tax issues like Section 179 and Depreciation.
“It’s those other things that I talked about too that add to the mix — the tax situation, the dollar situation, the exports. All those things taken together, if they start to trend poorly in terms of no action on tax legislation, the dollar starts increase and the global market starts to shrink. And then if you have borrowing here becomes a little more stressful and difficult with a higher interest rates, then it’s going to put a pinch and there are going to be some concerns. But, it hasn’t happened yet and I don’t think you’ll see anybody react as if it will happen.”
Strengthening Dollar Hurts Exports
The recent improvement in the U.S. dollar is having a negative impact on U.S. grain exports. Corn and soybean sales fell to near marketing year lows last week as international buyers went to cheaper sources, according to Farmland Forecast.
Corn exports were down 15% compared to the previous week. Despite the week-over-week drop, corn exports did see a 54% increase from the prior 10-week average.
Soybeans exports were hit harder, at down 66% from the previous week and 67% from the prior 10-week average.
Exports for U.S.-made farm equipment will likely suffer a similar fate as a result of the strength of the dollar. The Association of Equipment Manufactures reported in February that ag equipment exports dropped 29% in 2014. With farmers struggling to export grain and with low prices at home, their wallets will likely remain tight, hurting sales for farm equipment dealers.
Dealers on the Move
Dealers on the Move this week include Southeastern Equipment and Ziegler CAT.
Kubota and Case Construction dealer, Southeastern Equipment has opened a new rental location in Cambridge, Ohio, called Southeastern RENTS. The new store specializes in renting light earth moving equipment for contractors, homeowners, municipalities and farmers.
Ziegler CAT is opening a new sales and parts facility in Willmar, Minn. The new 5,360-square foot facility will offer compact construction and ag equipment, as well as a full inventory of parts for Cat construction equipment, AGCO ag equipment and Lexion combines. Ziegler now has 27 locations in total.
AgJunction to Acquire Novariant
Seeking to leverage a broader range of OEM partners through a more robust precision steering solution, technology manufacturer AgJunction is set to acquire California-based Novariant.
Full details of the merger are still being finalized, but will include a change in corporate headquarters from Hiawatha, Kansas, to Silicon Valley and appointment of a new chairman of the board and vice chairman.
With farm equipment manufacturers moving toward more integrated, factory-installed auto-steer solutions, the merger is a strategic move to develop and deliver more cost-effective, automated systems for OEMs, according to AgJunction CEO Rick Heiniger.
“By putting the two companies together we are able to achieve great efficiencies particularly in research and development and into integration customization for all the different various types of machines, tractors, harvesters, forage and hay. Anything that is going to be rolling through the field with a steering wheel, we should be able to bring the capabilities faster and better.”
The acquisition, expected to be finalized this summer, follows AgJunction’s recent partnership with Pulse Aerospace to integrate application controls on unmanned aerial systems used in precision farming.
JCB Growing Ag Dealer Network
Over the last year, JCB has been working to grow the agriculture side of its business in North America and has been making strides in expanding its dealer network for ag equipment.
To support their dealer recruitment efforts, JCB is adding additional sales territory managers who will also support JCB’s agricultural customer base. Parts inventory for JCB’s agricultural products will double in 2015 thanks to the recent addition of a Chicago-area parts warehouse.
Executive Editor Dave Kanicki sat down with Rob Marringa, general manager of dealer development, Dan Schmidt, vice president of agricultural sales, to discuss the types of dealers JCB is hoping to add to its growing network.
“One being production agriculture and production being traditional combine, chopper, sprayer. Someone who has a specialized product and understands crops or understands the local customer base and might adapt better to our high speed tractors, hauling tractors, FastTracs, wheel loaders and telemasters. It could be a good fit for that. We have a few of those who we are currently working with and have experience with. And for those types of dealers, we believe a premium European or high spec other OEM brands make a good match. A couple of examples are Claas and/or Krone and/or Versatile. A couple of other examples are McCormick dealers where JCB is supplemental and it’s a nice incremental revenue for that dealer.”
We’ll have more from Dave’s interview next time.
Worldwide Tractor Sales Decline
The decline in tractor sales is not limited to North America. Equipment sales are down throughout much of the world.
In India, adverse weather conditions are taking their toll on tractor sales. Domestic sales in India were down 10% between April 2014 and January 2015, the first 10 months of the fiscal year, according to the Tractor Manufacturers Assn. The decline has gotten steeper over the last 3 months, dropping 30%.
In the U.K. the Agricultural Engineers Assn., reports February sales dropped 28% vs. the same period last year. Year-to-date, tractor sales are down nearly 18% in the U.K.
German tractor sales saw a 21% decline in February, after dropping 5% and 6% in January and December, respectively. While overall sales were down for the 6 major brands in Germany, Kubota saw a 32% year-over-year increase in February.
French tractor sales saw similar declines, dropping 24% in February compared to last year, following drops of 20% and 27% the previous 2 months.
However, on the other side of the world there’s some positive news on tractor sales. In Southland, New Zealand tractor sales in 2014 were at a 10-year high.
According to Tractor and Machinery Assn. president Ian Massicks, famers were ready to invest in new equipment last year thanks to record dairy payouts and good growing conditions in the region. Sales for the country as a whole were up 10% for the year.
Ag Equipment Archives
Caterpillar was the first American manufacturer to offer diesel power in a production tractor, which it provided in its D2 crawler tractor in 1938. The D2, with its four-cylinder diesel engine, helped establish diesel power for farm work. The D2 engine had a gasoline starter motor with twin horizontal cylinders and its own pull-cord starting, which made fuel management complicated, as both diesel and gasoline were necessary to run the machine.
Around the same time, Caterpillar also manufactured a very similar R2 model based on the same design as the D2 model, except that it had a paraffin or gasoline engine.
Caterpillar’s R2 and D2 models, however, bear no connection to the famous space robot.
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Thanks for watching, I’ll see you next time.