In this episode of On the Record, brought to you by Associated Equipment Distributors, Deere Director of Investor Relations Josh Beal told JP Morgan analysts that the OEM is confident it will be “producing to demand” in fiscal year 2025. In the Technology Corner, Noah Newman visits with Dave Thompson, a precision farming specialist with Johnson Tractor. Also in this episode, dairy is proving to be a bright spot for ag equipment sales and used equipment pricing continues its downward trend.
On the Record is brought to you by Associated Equipment Distributors — the leading association in North America for the equipment distribution industry. Check out the upcoming 2025 AED Summit, the only industry event strictly dedicated to the equipment distribution industry, with 4 keynote speakers, over 40 industry specific education sessions, and over 200 exhibitors at www.aedsummit.com. Contact us at aedsummit@aednet.org for more information about how you can register for this event.
TRANSCRIPT
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- Deere Confident on ‘Producing to Demand’ in Fiscal Year 2025
- Dealers on the Move
- Technology Adoption Barrier: ‘Purse Strings Have Tightened’
- Dairy Segment Provides Bright Spot in Current Ag Market
- Used Equipment Pricing Continues to Decline
- DataPoint: Irrigated Cropland Reaches 30-Year Low
Deere Confident on ‘Producing to Demand’ in Fiscal Year 2025
Deere & Co. remains confident about producing to demand during fiscal year 2025, JP Morgan (JPM) analysts reported following a virtual meeting with Deere Director of Investor Relations Josh Beal in early October.
JP Morgan analysts expect Deere’s North American production could be down 10-15% next year with pricing flattish, which they said would drive decremental margin down to the typical 25-40% vs. the greater than 40% seen during fiscal year 2024.
According to the report, less than 50% of the field inventory of 100+ horsepower tractors in North America are Deere units, which is lower than Deere’s overall market share in the region, JPM reported.
North American large ag equipment inventory remains a cause for concern, the JPM analyst said, which could drive OEMs to under produce vs. retail at least through the first half of 2025 before retail sales “start lapping negative comparisons in the second half of the year.”
The analysts also expect Deere’s high decremental margin to improve in fiscal year 2025, largely due to adjustments from its peak production levels. Those adjustments are based on layoffs and factory disruption inefficiencies, “compounded by significant wage inflation in North America from the 6-year UAW agreement,” they said. They added, “However, next year is expected to see more stable production levels, reducing inefficiencies, while the UAW contract’s step-up year in 2024 will not repeat”
Dealers on the Move
This week’s Dealers on the Move include Acme Equipment and Champlain Valley Equipment.
Kubota dealer Acme Equipment, a division of Acme Tools, has acquired the Kubota dealership rights for the Bismarck/Mandan region in North Dakota from North Plains Equipment in Mandan, N.D. Acme Equipment is converting an existing building to house the new location. This is the dealership's 6th Kubota location.
New Holland and Kubota dealer Empire Tractor notified customers that it is merging with Vermont-based Champlain Valley Equipment, effective Nov. 1. Empire Tractor operates 5 stores in New York. The combined organization will have 11 stores in Vermont and New York. All stores will operate under the Champlain Valley Equipment name.
Technology Adoption Barrier: ‘Purse Strings Have Tightened’
Some precision specialists can start catching their breath as harvest season begins to wind down.
Last week, I shadowed Dave Thompson in Amboy, Ill. He’s a precision farming specialist with Case IH dealer Johnson Tractor. He tells me most of his customers were done with harvest by the middle of October. Dave says they’re way ahead of schedule, and he’ll be able to focus a little more on sales now with the extra time on his hands. I asked him, what’s the biggest hurdle you have to clear when selling new technology to customers?
“Cost. I run into that more than anything. It always seems to be related to cost. ‘Good idea. That sounds good.’ Then you tell them what it will roughly cost, and they’re kind of done at that point, so to speak. That would be my number one sales loss right there, simply the cost of some of the kits or equipment. My sales are down, which I believe correlates to the marketplace. The farmers’ price is down so they’re not going to spend money on things they feel they can be without. I’ll go as far to say some of my service calls are down. I think budgetary-wise, the purse strings have been tightened up.”
We’ll have much more from my visit with Dave in an upcoming Day in the Cab article on PrecisionFarmingDealer.com.
Dairy Segment Provides Bright Spot in Current Ag Market
With grain prices continuing to remain low, dairy provides a bit of optimism for equipment sales for dealers and manufacturers alike.
Speaking at World Dairy Expo on Oct. 4, in Madison, Wis., Secretary of Agriculture Tom Vilsack said USDA is expecting 2024 to be the third-highest export year for dairy products. In fact, he said, 2021 to 2024 may be a record for exports in terms of a 4-year timeframe. “The future of exports for dairy is bright,” he said
Year-over-year U.S. dairy exports modestly improved in August, with gains in several major product categories, according to the latest data from the U.S. Dairy Export Council.
During a panel discussion at World Dairy Expo, Krysta Harden, president and CEO of the U.S. Dairy Export Council, said dairy exports have become a critical part of dairy demand. In fact, 17% of U.S. milk production is exported.
Cobank reports that at $76 billion in annual U.S. sales, “the dairy aisle stands as the largest category in retail.” Cobank reports that over the last 3 years, dairy retail sales have grown at a rate of 15.4% or $10.1 billion. And, it added, that growth hasn’t been driven by the recent price inflation.
With dairy pricing better than cash grains, there’s opportunity for equipment sales for products like spreaders, balers, forage harvesters and some tractors. Greg Petras, president of Kuhn North America, says the dairy sector is giving them some optimism.
“The dairy industry has been a pleasant surprise this year. We thought that margins for our dairy men were going to be a lot lower than they are. And we're seeing some nice pickup in potential margins t he second half of this year, because we're seeing a better prices. It's all about supply and demand of course.”
“And I think, dairy's had done a good job, balancing the supply and demand aspect of the industry. And because of that it's rebounding. And, so we're very, as we round out this year and go into 2025, we're a little bit optimistic, about demand coming out of that industry for Kuhn products.”
Used Equipment Pricing Continues to Decline
Used equipment pricing is continuing on its downward trend. According to the latest Dealer Sentiments Report, dealers reported used equipment pricing was down 2% year-over-year in August.
Combine pricing is down 5% year-over-year, and according to the report has been hovering between down 4% and down 7% all year. Row-crop tractor pricing is down 3%.
Iron Solutions’ latest Used Equipment Trends report shows track row-crop tractors continuing on a steep decline. The 12-month moving average is at its lowest point since the third quarter of 2021, the report says.
Iron Solutions reports that ”These machines are among the most expensive to purchase and maintain within the row crop category, and their price tags seem to be pushing buyers away, further compounding the downward trend. Dealers are stuck with machines that are difficult to move without steep discounts.”
Datapoint: Irrigated Cropland Reaches 30-Year Low
This week’s DataPoint is brought to you by the 2025 Ag Equipment Intelligence Executive Briefing.
The latest USDA Census of Agriculture data show that just under 55 million acres of cropland in the contiguous United States were irrigated in 2022. This was the lowest level since 1992 and a decrease of roughly 3 million acres from the last census in 2017, when irrigated cropland reached a record high 58 million acres.
The decline was driven largely by decreases of 1.8 million acres in the Mountain region, 900,000 acres in the Northern Plains, and 700,000 acres in the Southern Plains. During 2022, these regions experienced severe, widespread drought conditions and other factors, such as restricted water supplies throughout the western United States, which broadly affected irrigated acreage.
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