Machinery companies that cater to the livestock sector see down market as an opportunity
Time will tell. That’s the mentality of the machinery industry and farmers moving into 2015. With commodity prices in a slump and the uncertainty of Section 179 (at press time, though, President Barack Obama was expected to sign into law), the machinery market is facing a year of unknown production and sales.
The leading machinery companies that primarily manufacture row crop equipment will likely cut production. However, machinery companies that heavily cater to the livestock sector see the down market as an opportunity.
“What we are experiencing is the headwind and tailwind of the marketplace for 2015,” says Leif Magnusson, Claas president, North America.
In fiscal year 2014, Claas had a record year in equipment sales, specifically self-propelled foragers. “Since we are not a market leader, we don’t see too many changes in our production and sales levels,” Magnusson says.
The Agrievolution Alliance global network, which consists of leading ag machinery companies, says manufacturers are less satisfied with their current business situation than they have been in the past four years, based on responses to its latest biannual survey. Only 18% of the companies surveyed described their business situation to be “good” or “very good.” In April, it was closer to 50%. The corresponding Agritech Business Climate index dropped 33 points from April to -7 on a 100 to -100 scale. This time last year, the overall climate index was 32.
The drop in corn and soybean prices and the resulting projected drop in net farm income by 23% compared to the past year is negatively impacting larger horsepower tractors and combines the most, says Charlie O’Brien, senior vice president of the Association of Equipment Manufacturers. “In the row crop area, some of our manufacturers suggest the market might be down 10% to 15% again next year with the first six months seeing the biggest decline from 2014 levels,” he says.
The North American market looks strong moving into 2015 compared to other countries. According to the Agrievolution Alliance survey, the U.S. will face lower order intake, but some companies continue to experience high national demand.
For example, compared to 2014, Krone Chief Operating Officer, Gary Thompson, says his company will increase order intake by 10%. Anticipating less of a hit compared to companies that manufacture row crop equipment, Krone plans to expand its workforce in North America, increase its marketing department and decrease the size of sales territories for greater sales response.
“It’s possible the hay and forage equipment market might slightly decrease in 2015 compared to 2014. However, if it does, we don’t expect it to be by much,” Thompson adds.
After several years of an up market, machinery makers will be riding out the down market and making the appropriate adjustments in output. “The long-term fundamentals for the industry are still very good,” O’Brien says. “We plant and harvest food. That fundamental will never change. The equipment market on a worldwide basis has a bright long-term future.”
More than 50% of U.S. ag machinery manufacturers find current business to be good or very good. However, the same can’t be said for manufac-turers in Europe and Japan. *weighted global average