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On The Record: June 27, 2014

What Do Severe Storms in Iowa Mean
For Crop Yields and Ag Equipment Sales?

In today’s newscast we look at whether recent severe weather in Iowa and Nebraska will have any negative impact on crop yields and equipment sales, declining sales for irrigation companies, rising new and used equipment inventories and changes to crop insurance subsidies.

Click here for complete transcript (below).

On The Record is brought to you by GBGI Inc.

GBGI Inc. has been developing hubs and spindles for the agricultural industry since 1997. Their product range includes IDA-X, the hub assembly with a robust design and ductile iron construction that substantially increases the load capacity and impact resistance compared to conventional fabricated welded assemblies.

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Please leave comments about today's episode in comments section below. You can also send feedback or story suggestions to kschmidt@lesspub.com and cvandermause@lesspub.com.


What Do Severe Storms in Iowa Mean
For Crop Yields and Ag Equipment Sales?

Here’s a look at what’s currently impacting the ag equipment industry.

Severe Weather Hits Iowa, Nebraska

Despite the severe storms that recently hit Iowa and Nebraska, it’s still too early to tell if the weather will have any negative impact on crop yields this year.

While concern has been expressed over weather damage and the need to replant, Andy Goodman, president of the Iowa-Nebraska Dealers Assn., says damage was limited to a few isolated areas and the need to replant overall is minimal.

The latest reports from USDA also point to crop conditions being in good shape.

According to AgriBusiness Insights, just 1% of the total combined U.S. corn and soybean acres for 2014 were impacted by the recent storms.

Iowa Secretary of Agriculture Bill Northey says the majority of Iowa’s corn and soybeans continues to be in good to excellent conditions despite excess water and damage in some areas of the state.

As of June 23rd, Iowa corn condition rated 58% good and 21% excellent, with just 5% rated poor or very poor. With almost all of Iowa’s soybean acreage emerged, soybean conditions rated 58% good and 18% excellent.

Goodman says the recent weather doesn’t have dealers too concerned. He adds most farmers and dealers operate under the adage “rain makes grain.”

“For the most part farmers would rather have the rain than drought. Probably the two issues that are having more of an effect on dealers and on the industry is number 1 the price of commodities right now, where the price of corn is especially right now, and then the fact that we don’t have the Section 179 tax benefit this year that we had last year. There are a lot of buyers that are holding off that Section 179 will be reinstituted back up to $500,000.”

The weather is having an impact on irrigation equipment sales, however.

Good Growing Conditions Hit Irrigation Companies Hard

On June 25th, irrigation equipment manufacturer Lindsay reported a 37% drop in profits for the 3rd quarter, attributing the drop to lower farm profitability prospects due to lower commodity prices and unrest in the Middle East and Ukraine.

Earnings for the quarter dropped to $16.5 million and revenues were down 23%. 

Lindsay CEO Rick Parod says, “Overall favorable growing conditions in North America continues to restrain crop prices which is creating a headwind for irrigation equipment demand compared to the previous year.”

Earlier this week, Valmont Industries lowered its outlook for the second quarter and the 2014 fiscal year, citing a challenging demand environment for irrigation equipment in North America. Valmont will release its second quarter results on July 17.

C. Schon Williams, an analyst with BB&T, says all together irrigation sales have declined year-over-year for four consecutive quarters.

He says BB&T views the “results as a negative read-through to Valmont Industries, as Lindsay’s 25.8% year-over-year decline in total irrigation sales is well below the 18.9% drop we are modeling for Valmont’s second quarter irrigation revenues.”

Williams says given Lindsay’s latest earnings report, Valmont’s call for flattish irrigation demand in the back half of the year may be too optimistic. 

Dealer Outlook for 2014 Remains Stable

Farm equipment dealers’ outlook for 2014 remains stable at a 4% sales decline, according to the June Ag Equipment Intelligence Dealer Sentiments & Business Conditions Update Survey — but both new and used inventories are growing.

A net 26% of dealers categorize their new inventory as “too high,” vs. 15% last month, which was previously the highest reading in the history of the survey.

For used equipment, a net 38% of dealers reported inventory was “too high” in May, a reversal of the better trend seen in April. 

And used combine inventories were the highest with a net 52% of dealers reporting inventories were “too high.” 

One dealer responding to the survey said, “We’re hopeful that some timely rains and heat along with stability in commodity prices through the summer will generate some more optimism among our mid-to-small farmers and parlay into activity on used equipment — we have plenty of options waiting for them.” 

Crop Insurance Subsidies Tied to Environmental Compliance

It wouldn't be hard to argue that crop insurance was a game changer for all of U.S. agriculture during recent drought years. It not only covered farmers’ losses resulting from lack of rain, but it helped fuel strong farm equipment sales in what was expected to be a very difficult market.

With the Agricultural Act of 2014, crop insurance replaces nearly all direct payments and countercyclical payments that were previously available to farmers during years when weather or market conditions impacted their bottom lines. 

One aspect of the 2014 Farm Act that hasn’t received much attention is that it adds crop insurance premium subsidies to the list of benefits that could be withheld for noncompliance with conservation provisions.

According to USDA, producers who fail to apply approved soil conservation plans on highly erodible cropland or who drain wetlands could become ineligible for all or part of a number of commodity programs, conservation programs, disaster assistance, and now crop insurance premium subsidies.

In recent years, the value of such subsidies has increased as premium subsidy rates, crop insurance participation, and commodity prices all rose. On average, the Federal Government pays roughly 60% of crop insurance premiums, and about 80% of acreage for all major commodity crops is now covered by crop insurance. In 2012, crop insurance premium subsidies were roughly $6.7 billion or about 60% as large as all commodity, conservation and disaster assistance payments combined.

Manufacturers Optimistic on Second Half of 2014

Manufacturers across various industries are optimistic that the second half of 2014 will be better than the first, according to the National Assn. of Manufacturers latest survey.

Average manufacturing sales forecasts in the NAMIndustryWeek survey were the highest in 2 years, and capital investment and hiring plans were moving in the right direction as well, according to Chad Moutray, chief economist with NAM. 

The number of nonfarm job postings reached a pre-recession high in April. For manufacturers, job openings have increased over the last 2 months, but still remain below November’s peak. The increase of jobs in manufacturing was primarily in the durable goods sector, which includes ag equipment.

Ag Equipment Archives

From 1930-1938, Massey Harris develops its M-H General Purpose tractor, the industry’s first four-wheel-drive, steel-wheeled tractor. It also has an adjustable track width.

Unfortunately, the benefits of four-wheel drive were not yet fully understood. The machine was modernized in 1936 with the installation of rubber tires, but sales failed to increase.

As always we welcome your feedback. You can send comments to kschmidt@lesspub.com.

Thanks for watching. I’ll see you next time. 

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