On The Record: August 22, 2014
Lower Equipment Demand Likely
With Record Corn Yield Predicted
In today’s newscast we look at what USDA’s latest corn yield estimate could mean for ag machinery sales, an update on the latest UAV research and the latest financial results for Cervus Equipment, John Deere, AgJunction and Raven Industries.
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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.
On August 12, USDA released its latest World Agricultural Supply and Demand Estimates, calling for a record corn yield forecast of 167.4 bushels per acre. The department expects 2014/15 corn prices in a range of $3.55-$4.25
Steven Fisher, analyst with UBS, says the latest estimates support the firm’s thesis for lower equipment demand.
He says, “While corn stock-to-use came in below consensus, we believe the overriding theme of record production and lower prices is the bigger takeaway, and more likely to weigh on equipment purchase intentions. We believe the $3.90 price/bushel, if realized, would represent a significant headwind to cash receipts and impair farmer appetite for further equipment purchases.”
C. Schon Williams, analyst with BB&T Capital Markets says based on the latest report, they now estimate that farm cash receipts will be down 10.3% year-over-year during the 2014/15 growing season and they continue to have a negative outlook on ag machinery demand.
Cervus Equipment Revenues Down 2.8% in 2Q
John Deere dealer group Cervus Equipment released its second quarter results August 13. Quarterly revenues decreases by 2.8% as a result of a $9 million, or 5.2%, decrease in ag equipment segment revenue.
Despite a reduction in new ag equipment sales, gross profit dollars increased $0.3 million in the second quarter of 2014 compared to the second quarter last year, primarily due to substantial increases in agricultural parts and service sales offsetting declines in new ag equipment sales.
Ben Cherniavsky, analyst with Raymond James, says although the firm expected this year to be tougher for ag dealers, Cervus’ second quarter new machine sales dropped a full 14%, more than they anticipated.
While construction revenues were up year-over-year, they were below Raymond James’ forecast due to challenges in the material handling business.
Similarly, while after-market revenues saw growth in both segments, they still missed the firm’s numbers, James says.
Technology editor Jack Zemlicka has been keeping up with advancements in the unmanned aerial vehicle industry. Here’s Jack with his latest report.
Plains’ States Lead the Way in UAV Development
As the unmanned aerial vehicle industry looks to take flight in North American agriculture, the technology is still largely grounded in the U.S., due to federal regulations.
But this certainly hasn’t prevented manufacturers from developing and farm equipment dealers from selling UAVs to farm customers and retailers. As the government clarifies flight rules, perhaps as early as next year, experts suggest one of the potential hotbeds for development and deployment of UAVs could be the Plains’ states.
Several universities in the region are currently researching and experimenting with the practical value and capabilities of UAVs to scout crops, monitor livestock and record aerial imagery.
We recently caught up with John Nowatzki, agricultural machine systems specialist with North Dakota St. Univ., at the International Conference on Precision Ag in California, where he explained why the state and others in the area could become the central hub for UAV technology.
[Video clip – John Nowatzi, agricultural machine systems specialist with North Dakota St. Univ.]
Nowatzki admits that it will take time to for the industrialized model of the UAV industry to evolve into a viable commercial business. But in the same way Silicon Valley became the cradle of consumer technology, the Plains states could emerge as the leader in UAV innovation.
Back to you Kim…
AgJunction, Raven Release Quarterly Results
Precision farming equipment companies AgJunction and Raven Industries reported their latest financial results on August 13 and August 20, respectively.
For the second quarter and six months ended June 30, 2014 AgJunction reported a 37% decline in total revenue. All business units were down compared to the same quarter in 2013.
U.S. and Canadian combined revenues were down by 30% for the quarter as a result of the new aftermarket dealer program for the company’s Outback line that was implemented during the fourth quarter of 2013, along with the expected softening in the aftermarket retail space.
AgJunction president and CEO Rick Heiniger said, “These business cycles are typical of the industry in which we operate and are being felt by both our customers and our competitors. I firmly believe that the cost structure we put in place last year, coupled with a strong balance sheet, solid OEM relationships and upcoming product releases, will allow us to exit the downturn stronger than others.”
The slow ag equipment market affected the overall results for Raven’s second quarter, which saw a 1% increase vs. the second quarter of last year.
Sales in the Applied Technology segment, which serves the ag market, were down 7% vs. the same period last year.
Raven president and CEO Daniel Rykhus said, “Although the North American ag equipment environment is currently soft, and we are expecting it to remain soft for the next four quarters, our long-term view remains optimistic.
“Despite these near-term challenges, we are aggressively pursuing closely adjacent growth opportunities. For example, we are adding new aftermarket distribution in key global markets and executing on high-quality growth projects with existing OEM customers to further utilize our existing and emerging product lines."
Now here’s assistant editor Jaime Elftman with a look at John Deere’s latest earnings report.
Deere’s Ag Sales Down 11% in 3Q
Deere & Co. reported its third quarter results August 13, with net income at $850.7 million, a 15% decrease from the same period last year. Despite the decrease, income was still the second highest for any third quarter in company history.
Net sales and revenues decreased 5% to $9.5 billion for the third quarter vs. the same period last year. Equipment net sales in the U.S. and Canada decreased 8% for the quarter and 7% year-to-date.
Agriculture and Turf sales fell 11% for the third quarter compared to the same period last year. Deere’s worldwide sales of agriculture and turf equipment are expected to decrease 10% for fiscal-year 2014, down 3% from the previous forecast, reflecting a lower industry outlook for sprayer and turf sales in the U.S.
Earlier this month, Deere introduced its certified pre-owned program to help move used equipment. Combines less than 2 years old with less than 1,000 hours and four-wheel drive tractors, less than 3 years old and with fewer than 1,500 hours are eligible.
Products in the program will be backed by a 1-year, 500-hour comprehensive power guard warranty and include a 1-year subscription to JDLink, which monitors machinery performance, tracks fuel usage and manages and protects equipment from a laptop, desktop or mobile device.
Director of Investor Relations for Deere, Tony Huegel, says they’re working diligently with dealers to bring used inventories down in line with what they’re expecting demand to be…The certified pre-owned program is a long-term strategic program.
“It isn’t intended to be viewed as a silver bullet to remedy the situation overnight, but it will certainly be helpful,” he says.
And now from the Ag Equipment Archives…
J.I. Case Company Self-Propelled Traction Engine
In 1878, the J.I. Case Company created its first self-propelled traction engine with a drive mechanism on one of his portable engines. That same year, Case won first place at the Paris Exposition in France for its wheat thresher. It was the first time the company had sent a thresher abroad and it was the first of thousands that would later be exported internationally,
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