On The Record: July 11, 2014
Record Harvest Could be
Bad News for Machinery Sales
In today’s newscast we look at what a record harvest could mean for equipment sales, news of the first gallons of commercial-scale cellulosic ethanol being produced, Art’s Way’s second quarter results and dealers report sales growth in 5 out of 11 regions.
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Record Harvest Could be
Bad News for Machinery Sales
Here’s a look at what’s currently impacting the ag equipment industry.
Earlier this week, USDA reported conditions are right for corn and soybeans to equal or surpass last year’s record harvest, which would continue the downward pressure on crop prices. Wheat prices are also expected to be flat to lower for the year.
For dealers and manufacturers, this isn’t particularly good news as declining crop prices generally translate into lower farm equipment sales.
Currently, year-over-year corn prices are down nearly 41%, soybeans are down slightly over 15% and wheat is down nearly 17.5%.
Market consensus is the corn pricing could drop to about $4 per bushel, though one commodity expert is predicting $3.50 per bushel corn by the time this year’s harvest is completed.
On the other hand, Jerry Gidel, chief feed grains analyst for Chicago brokerage firm Rice Dairy LLC, sees corn pricing settling down by the end of this month. Quoted in a July 7 Bloomberg report, he said,
“Rains probably have taken the top end off yields, and with a smaller acreage, the crop may be less than a year ago. Corn prices are cheaper than a year ago, and demand should be better than people expect. We could see the market bottom by the end of July.”
In his analysis of USDA’s July 7 Crop Progress report, Steven Fisher, analyst with UBS, said he expects lower corn prices to have a significant impact on this year’s equipment sales.
“Current corn condition is better than the 5-year average and remains ahead of last year's progress,” he said in a note to investors.
“We continue to believe lower corn prices this year could drive a double-digit decline in crop receipts and, in turn, drive a large decline in ag equipment sales. All else equal, we expect the decline in ag equipment sales to accelerate to double-digit levels in 2014.”
First Gallon of Cellulosic Ethanol Processed
On July 1, the first ever gallon of commercial-scale cellulosic ethanol was produced by Quad County Corn Processors in Iowa, beating DuPont and Poet to the punch, according to a report in the Des Moines Register.
Quad County Corn Processors converts the kernels’ corn fiber into cellulosic ethanol in addition to producing traditional corn ethanol. The cellulosic ethanol operation enables the company to produce 6% more ethanol, 300% more corn oil and livestock feed with 40% more protein.
On July 2, the EPA ruled that the cellulosic fiber found in the corn kernel qualifies as crop residue, which effectively approves corn fiber as a qualifying feedstock for cellulosic bio-fuel production, according to the Renewable Fuels Assn.
The U.S Department of Energy predicts total crop- and pastureland planted in bio-energy crops will increase from less than 10 million acres today to between 60 and 80 million acres over the next 15 years.
As a result, manufacturers like AGCO are developing new processes and technologies to help make the harvest of biomass, particularly stover, more efficient and profitable.
AGCO’s new series of combines allow for single-pass harvesting. The company also has a line of single-pass baling products that are ideal for producers and energy companies.
According AGCO, several other pieces of equipment for harvesting residue are in the works, such as a corn header that can harvest 150% higher volumes of corn and material other than grain.
Ultimately the politics surrounding ethanol will have to sort themselves out before ethanol use — whether traditional or cellulosic — will grow in the future.
Art’s Way Reports 2.4% 2Q Net Sales Gain
Art’s Way Manufacturing, a manufacturer and distributor of agricultural equipment, reported on June 26 that net sales were up 2.4% for the second quarter vs. last year.
Net income, however, was down 50.8% for the quarter vs. the second quarter of 2013.
Second quarter sales for the manufacturing segment were down 2% vs. the second quarter of 2013 and the six-month sales for 2014 saw an 18.5% decrease. The decrease in revenue year to date was primarily due to the reduced sales of sugar beet harvesters.
The company says the colder than average winter during Art’s Way’s first fiscal quarter of 2014 delayed production runs for some specific product and thus sales.
Chairman of the Art’s Way Board of Directors, J. Ward McConnell Jr., said, “After a first quarter that was adversely impacted by severe winter weather, revenues have rebounded in the second quarter and have surpassed the second quarter of 2013. Our sales of agricultural products have recovered to a large extent, and our backlog remains strong.”
Dealers See Sales Growth in 5 out of 11 Regions
According to Ag Equipment Intelligence’s June Dealer Sentiments and Business Conditions Update released June 30, dealers in five out of 11 regions saw positive average monthly sales growth in May.
Just four regions saw positive growth in April.
The Mountain and Appalachia regions were the strongest performers with equipment sales up 5% year-over-year on average, while the Northern Plains region was again the weakest region with average sales down 8% year-over-year.
Compared to April, the Mountain region saw the strongest pick up in growth in May going from down 8% to up 5%. Meanwhile, the Delta States saw the largest deceleration with sales going from up 13% year-over-year in April to up 4% in May.
Overall, dealers reported sales were down 2% in May, an improvement from the 4% decline seen in April.
And now from the Ag Equipment Archives …
In 1942 International Harvester builds “Old Red,” the first commercially successful cotton picker, but scientists must modify the cotton plant to eliminate foliage and ensure uniform ripening. The following year, “Old Red” moves across the San Joaquin Valley in California to radically change cotton harvesting.
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