In today's newscast we look at New Holland’s outlook for 2016, used equipment inventory challenges, how precision ag parallels the IT industry and the need for farmers to cut $100 per acre in 2016.
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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: $36.34 −1.43
New Holland Expects 'Decent Year' in 2016
New Holland is a diverse brand that reaches all sectors of the ag market. For that reason, the company’s new vice president for agriculture Bret Lieberman says 2016 will be a “decent year.”
Executive Editor Dave Kanicki caught up with Lieberman at the Farm Progress Show earlier this month. While the cash crop segment will remain challenging, Lieberman thinks 2016 will be similar to this year.
Regardless of the market conditions, Lieberman says the key is being able to compete.
Dealers on the Move
Dealers on the move this week include Valley Plains Equipment, Reliable Equipment and GreenMark Equipment.
John Deere dealer Valley Plains Equipment has begun building a new 68,000 square foot facility in Jamestown, N.D. The original building is being moved 200 feet to the east and will now be used as a cold storage facility. The dealership was Farm Equipment’s Dealership of the Year in 2005.
Kubota farm equipment dealer Reliable Equipment of Hernando, Mississippi, will also be breaking ground on a new facility that will double the size of its showroom to more than 10,000 square feet.
John Deere dealer GreenMark Equipment has closed its Goshen, Indiana, store and now has 15 locations throughout Michigan and Indiana.
Used Inventory Remains Challenging
North American farm equipment dealers continue to grapple with excess inventory of used machinery.
According to the results of Ag Equipment Intelligence’s 2016 Dealer Business Outlook & Trends survey, nearly 40% of dealers expect revenues from the sale of used equipment to be at least 2% to more than 8% lower than they were in 2015.
This compares to last year’s results when 33% of dealers expected revenues from used machinery sales to be lower than they were in 2014.
More than 280 dealers participated in this year’s survey.
Ag Equipment Intelligence spoke with Jim Walker, vice president of North America for Case IH, at the Farm Progress Show earlier this month about the used equipment situation and its impact on new equipment sales.
Walker said, “I honestly feel today there are probably more large producers who are willing to buy high horsepower equipment today than dealers are able to take in on trade.
Albeit it’s a lot smaller level than 2013; but they’re out there. If we want to capture that opportunity we have to be a partner with our dealers on the used equipment.”
Extended coverage of survey results will appear in the October/November issue of Farm Equipment and the complete report will be sent to AEI subscribers in 3 weeks.
Technology Corner: Precision Ag Parallels IT Industry
The foundation of precision farming revenue for dealers has always been selling hardware. This approach has been a profitable one, but not necessarily sustainable, long-term, says Arlin Sorensen, founder of HTS Ag, a precision farming dealership in Harlan, Iowa.
Sorensen spent more than 25 years in the IT industry and sees precision ag profitability evolving in the same way, moving from a product-focused business to one rooted in service. This is being driven by shrinking margins on precision hardware — as was the case in the IT industry as it matured.
Dealers are now challenged to create a service model to go along with the sale of a product to sustain profitability. Pre-paid support packages and remote service are two trends being adopted from the IT industry and tailored for precision ag.
But Sorensen says dealers won’t be able to make the transition on their own, when we caught up with him at HTS Ag’s 20th anniversary event earlier this month.
“Vendors have to help us be successful here or we’ll become extinct, basically because there’s just got to be a transition to service revenue as a key part of profitability. In IT today, most of the companies are making more than 50% of their profitability off of services. In a lot of cases, the highly profitable ones, it’s more like 70-80% for service profitability. That’s where the revenue has got to shift. So we’ve got to have this major shift occur and unless the vendors help us with that transition, it’s going to be a tough go.”
In addition to gaining manufacturer support, another key element for dealers’ transition to more service-based revenue, will be changing the mindset of farm customers. While not an easy sell for those used to free service, Sorensen says it’s a profitable path the IT industry took and one precision ag needs to follow as well.
Cutting Production Costs
The University of Illinois released a report this week saying cash rents on professionally managed farmland will likely decrease in the 2016 cropping year.
The same is true for non-professionally managed farmland. However, ag economist, Gary Schnitkey says in the report the projected decreases are not large enough for farmers to have positive returns in 2016 given current commodity prices and production costs.
Schnitkey had previously reported that farmers will need to cut $100 per acre in order to avoid losses in 2016.
A reduction of this size in one year is historically unprecedented.
I caught up with Schnitkey during the Farm Progress Show. He says there are four areas where that cost savings can come: cash rents, fertilizers, seed or pesticides.
While equipment purchases have already come down, Schnitkey says that savings isn’t enough to impact profitability.
Ag Equipment Archives
Samson Iron Works of Stockton, California, built the Samson Iron Horse tractor in 1921.
It was designed to have many of the same qualities of a horse to add familiarity for farmers just beginning to move away from horses as the primary movers of farm equipment.
The Iron Horse featured optional rein controls and four wheel drive. Other tractors also offered rein drive during that time including the Rein Drive Tractor of Toronto, Ontario.
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