In today’s newscast we report on the passage of Section 179, AGCO’s move to reduce costs in 2015, the FAA’s regulatory exemptions for UAVs and improving farmer attitudes.
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Section 179 Moves to President’s Desk
I’m managing editor Kim Schmidt, welcome to On the Record. Here’s a look at what’s currently impacting the ag equipment industry.
Congress Passes Sect. 179
On Tuesday night with a vote of 76-16, the Senate passed the Tax Extender Bill, which will extend tax breaks through Section 179 depreciation limits for 2014. The House passed the measure Dec. 3 on a 378-46 vote. The bill now heads to President Barack Obama, who is expected to sign it.
The Tax Extender Bill reinstates the deduction limit to $500,000 for 2014 only and does not apply to purchases made in 2015.
Darrel Good, professor emeritus with the Department of Agriculture and Consumer Economics and the University of Illinois says the passage of Section 179 could tip the needle for some farmers to make big purchases yet this year.
“If they were going to make some last minute machinery or equipment purchases this year this will kind of push them over the hump and encourage them to do that. I think that helps with their attitude as well.”
One dealer we spoke with says he has $1.5-2 million in sales waiting on the passage of the bill.
AGCO Reducing Costs in 2015
During its investor meeting on Dec. 15, AGCO announced cost initiatives that are expected to lower sales, general and administrative costs and manufacturing support costs by approximately $150 million in 2015. The ag equipment manufacturer also plans to save $70 million in annual material and production system costs.
The company also unveiled a new $500 million share buyback, on top of the current $500 million program.
AGCO is forecasting 2015 industry tractor and combine sales to be down 5-10% in North America, with high horsepower equipment down 20% or more. The company anticipates Western Europe sales to be down 5-10% and South America to be down 10%.
The company is expecting 2015 sales of approximately $8.5 billion, which will be a year-over-year drop of 12-14%. Steven Fisher, analyst with UBS, says management guided to a 7-10% decline in 2015 production hours, with a 15-20% decline in the first quarter.
AGCO also announced that Robert Crain, senior vice president and general manager, North America, will be doing double duty by also filling the same role for the South American division effective Jan. 1, 2015. North America and South America are responsible for 43% of the company’s total sales so far this year.
December WASDE Report
The December WASDE report, released Dec. 9, brought some positive news, showing a boost in both soybean exports and U.S. corn usage. And as Dec. 15, March 2015 corn futures traded to a high of $4.115, the highest level since July 10 and $0.80 above the low reached Oct. 1.
Darrel Good with the University of Illinois says farmers are becoming a little more optimistic and recognize that corn prices are going to stay low for this crop year because of the excess supply.
“The doom and gloom is beginning to lift a little bit and they’re feeling just a little bit more optimistic. In a nutshell, it’s just a prospect for a tighter supply and demand balance and higher corn prices for next year and that might be offset slightly with some softness in soybean prices but overall I think the outlook and attitude is improving.”
Trimble Spreads Wings With UAV Exemption
With a multitude of companies jockeying for position in the Unmanned Aerial Vehicle market, federal rules will ultimately determine how much airspace there is to commercially fly the technology in the future.
This past week, the Federal Aviation Administration granted regulatory exemptions for UAV operations to four companies from different industries that promise to benefit from the technology.
Among the companies granted an exemption was Trimble Navigation, which will be allowed to fly its UX5 unmanned fixed-wing aircraft for the surveying, precision agriculture, oil & gas, mining, construction and environmental industries.
The company has taken a cautious approach to introducing its UAV products in the U.S., given the regulatory uncertainty. But the recent exemption was granted pursuant to Section 333 of the FAA Modernization and Reform Act of 2012, which governs current UAV use in lieu of more defined commercial regulations.
According to Joe Denniston, vice president of Trimble’s Agricultural Division, the FAA exemption moves the company closer to providing safe and legal UAV use for a variety of ag and non-ag operations.
The FAA has a target deadline of Sept. 2015 to develop permanent regulations for UAVs, and companies have asked the agency to grant exemptions that address general flight rules, pilot certificate requirements, manuals, maintenance and equipment mandates. In their petitions, these companies say they will operate UAVs weighing less than 55 pounds and keep the UAVs within line of sight at all times.
It remains to be seen if other agricultural companies will be granted exemptions by the FAA and as of early December, the agency had received 167 requests for exemptions from commercial entities.
Titan Machinery 3Q Revenues Drop 16%
Titan Machinery, Case IH’s largest dealer group in North America, reported third quarter results on Dec. 10. The company’s total third quarter revenues dropped 16% to $493.1 million vs. $588 million at the same time last year.
Equipment sales for the third quarter were down 22% year-over-year and parts sales were down slightly at down less than 1%. Revenue generated from service increased 4.3% year-over-year and revenue from rental and other increased almost 8% from the same period last year.
For the fiscal year ending Jan. 31, 2015, Titan has revised its outlook and now expects revenue to be in the range of $1.85-$2 billion, compared to its previous range of $1.9-$2.1 billion.
Ag Equipment Archives
Case is the first of the old-line harvester companies to build a gas tractor. Designed by William Paterson in 1892, the Paterson Tractor’s engine used a tandem cylinder design with two connecting rods, operating off of the same crankshaft journal, providing a power stroke on each revolution of the crankshaft.
The tractor was not successful and the company did not build another gas tractor until 1911, when the 20-40 and 30-60 tractors first went on the market in 1912. The 20-40 tractors became an overnight sensation in the business.
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On behalf of the entire team here at Ag Equipment Intelligence and On the Record, may you have a happy and relaxing holiday. Thanks for watching; I’ll see you next year!