In today's newscast we look at possible scenarios for manufacturer consolidation in the next 2 years, a new online resource that lets retailers coordinate equipment rentals with farm customers, OEM outlook for the next 12 months, the products dealers think are the "best bet" for improving sales in 2016 and Art's Way's latest earnings report.
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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: $37.77 +1.43
Is OEM Consolidation Likely?
As ag equipment sales continue to decline, a Rabobank report suggests that consolidation among manufacturers is likely.
Kenneth Zuckerberg and Harry Smit, who wrote the report, say it’s unlikely the pressure on tractor and combine sales will stabilize until 2017 at the earliest. The contraction in revenues has been particularly bad, they say, with the three major OEMs reporting revenue declines in North America from 22% to 37%.
Long-term, Rabobank says the industry will need to restructure itself too address three major challenges. These challenges include: the mature nature of the North American market offers limited organic growth opportunities; ongoing farm consolidation that has resulted in larger “corporate-style” farms; and growers operating in a “new normal” environment of severe weather and droughts.
Zuckerberg and Smit suggest three scenarios for manufacturer consolidation in response to these challenges.
The first option is a merger among the five largest players behind Deere to create a true competitive peer to the industry leader.
The next option is acquisitions by the five next largest players to develop further scale and capabilities by buying smaller harvesting and implement manufacturers.
And finally, expansion into new or adjacent markets in order to accelerate growth. This could include grain storage and treatment, feed processing, chemical blending, animal storage and protein production systems and milking equipment.
The authors say they see these scenarios emerging over the next 12-24 months.
Dealers on the Move
In Dealers on the Move this week, Hendershot Equipment Co. is now an authorized Mahindra dealer and will offer the complete line of products at its Stephenville, Texas, location.
Hendershot Equipment was named a Best-in-Class Dealership in Farm Equipment’s Dealership of the Year program in both 2007 and 2008.
Technology Corner: Equipment Sharing Links Dealers to Revenue
Selling used machinery remains a challenge for many farm equipment dealers working with fiscally conservative customers in today’s ag market. A recently launched program is offering dealers a new alternative to letting tractors, combines or other implements sit on the lot until the right customer comes along.
Kansas City-based FarmLink, a provider of precision farming technology for combines, developed Machinery Link Sharing. The online resource lets retailers coordinate short- or long-term equipment rentals with farm customers. Dealers set the rental price and customers make online reservations based on need, then publicly rate the retailer based on satisfaction and machinery performance.
The program is designed to help dealers increase equipment turns and generate supplemental income, according to Dan Alcazar, vice president of marketing with FarmLink.
“If I’m sitting on a sprayer for 6 months, on average, and I can rent out that sprayer for a week, just one week out of the 26, and I’m making $100 an hour for 40 hours, it covers at the low end, it covers an awful lot of interest payment, and for the dealer’s benefit, they can still sell that piece of equipment. The depreciation associated with the hours that were put on a sprayer would be minimal.”
While there is no membership fee for dealers to participate, FarmLink receives a commission on each transaction, but the agreement is entirely negotiated by the dealer and the customer, based on need and availability.
Alcazar adds that 20 years ago, a program like this likely wouldn’t have gotten much traction, but it’s one that makes more sense in today’s equipment marketplace. Since its launch in August, the equipment-sharing program has had more than 16 dealers enroll.
OEMs Expect Sluggish Year
According to survey results from the Assn. of Equipment Manufacturers, OEMs expect wholegoods of large equipment to continue to be down for the next 12 months.
Survey participants expect lawn and garden equipment and tractors to be up by 1-5% in 2016, and AEM suggests the outlook for tractors is likely driven by small horsepower models.
Components and attachments are largely expected to increase across the board, except for harvesting equipment and soil working, seeding, fertilizing and planting equipment.
Almost 60% of manufacturers surveyed say new orders for both ag wholegoods and components/attachments have fallen. About 42% of manufacturers reported flat to rising wholegoods production and 37% say production of ag components/attachments is flat or increasing vs. the same time last year.
Dealers ‘Best Bets’ for 2016
Much like the manufacturers, farm equipment dealers are most optimistic about sales of lawn and garden equipment. The results of Ag Equipment Intelligence’s 2016 Business Trends & Outlook survey reveal that nearly 40% of dealers expect 2016 lawn and garden equipment sales to improve by 2% or more over 2015.
The number two spot goes to GPS and precision farming tools, flowed by 2WD tractors under 40 horsepower and 2WD tractors 40-100 horsepower. Mower conditioners rounds out the top 5 products for improving sales.
Unsurprisingly, combines were at the bottom of the list, with just 7.3% of dealers expecting sales to improve over 2015.
The complete report will be sent to Ag Equipment Intelligence subscribers later this month.
Art’s Way 3Q Revenues Decline
Art’s Way, a diversified manufacturer of ag equipment, announced it’s third quarter earnings on October 1. Sales for the quarter were down 40.6%. This drop was due largely to decreased sales in the ag equipment segment. Sales for the ag segment were down 48% compared to the same quarter last year.
While demand for all of Art’s Way’s ag products are down, sales for its Universal Harvester reel were down by nearly 70% year-to-date compared to the prior year.
Looking ahead, chairman Marc McConnell says he’s looking at the fourth quarter with cautious optimism. Art’s Way had profits of $468,000 in the fourth quarter last year. McConnell says he doesn’t expect the coming quarter to be that good. But at the same time he says they don't expect anything to be as bad as this past third quarter.
Ag Equipment Archives
In 1959, Melroe Mfg. introduced the harroweeder, the first harrow to use flexible, coil spring teeth instead of rigid ones. Harrows prior to the harroweeder broke down often in hard soil, inspiring E.G. Melroe to design and produce the modified version with coil springs, which he named the harroweeder. By using springs, the device gently stirred the soil and pulled up small weeds with shallow roots. It could cultivate 16 or 24 rows of corn, taking 55-foot passes.
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