Expect slow ag machinery sales

BISMARCK, N.D. -- The farm equipment and implement business is bracing for a correction in corn- and soybean-dependent areas of the region. Dealers expect to be buoyed by livestock-related diversification, turf and construction areas in 2015.

"This is still a pretty good time to be in agriculture -- more normalization," said Greg Hart, John Deere's manager of U.S. sales in the western region. Hart, who supervises ag and turf-related sales west of the Mississippi River, including the Dakotas, Minnesota and Montana, was a keynote speaker Nov. 18 at the North Dakota Implement Dealers Association annual convention in Bismarck, N.D.

"Customers, though, recognize they've got some leverage," Hart acknowledged, adding equipment dealers will need to shift gears to be successful moving forward.

He asked his audience of more than 200 equipment dealer workers how many had gone through the 1980s farm equipment decline, and about half had. He said this downturn is "not going to be that bad," but said management will need to guide the uninitiated through this normalization or correction.

"Help them, motivate them to sell, and cull the ones that aren't going to make the journey. That's nature's order," he said.

Predicted decline

Hart said prices through 2014 supported the addition of added marginal lands to the U.S. corn and soybean production areas. As prices of those two crops contract, acres will revert to alternative crops and there will be a contraction of acres in the coming year.

The 2014 year saw a national 15 percent decline in ag equipment sales receipts and Deere and government reports see another decline in 2015, perhaps in the 10 percent range, Hart said, but noted that's still at or above levels in 2010, which was a pretty healthy manufacturing and sales year.

Hart said U.S. Department of Agriculture forecasts a 14.8 percent decline in farm business net cash income for 2014, compared with 2013 for the Northern Great Plains. That includes northwest Minnesota, much of South Dakota and west through eastern Montana. Meanwhile, the southern Minnesota and Iowa "Heartland" region's business is expected to tumble 16.4 percent for the year.

In a room filled with equipment sellers of all brands, Hart said "strong large ag tailwinds" allowed new equipment sales to grow three-fold in the past decade.

"That's an amazing statistic to me," he said. "It's just been a great, great ride."

But that's also led to higher levels of late-model used trade-in inventory, Hart said.

"I've made the statement to some of my colleagues that we could probably not sell any product, of any color, and we'd still have a crop," he said. "There's an awful lot of horsepower out there."

Manufacturer orders and production are down, and have reduced factory schedules.

Used equipment glut

"Used equipment? I don't think there's any secret here: We've got too much (used equipment)," Hart said.

Values have declined, creating risk for dealers, with the extension and reduction of trade cycles.

"We're seeing a lot of dealers making adjustments to the way they compensate sales people, to drive that focus on used equipment -- because of the risks associated with it, the potential for loss, let's get the inventories worked down," Hart said.

If the equipment doesn't move fast enough, Deere urges dealers to "punch out" by going to wholesale, auction and off-shore options to move used equipment.

Hart offered some optimism about the general price trends for commodity prices, including corn. While the price has declined recently, the price from 2006 to 2014 has averaged about $4.62 per bushel, compared with an average of $2.27 per bushel from 1970 to 2005.

There are still reasons to be optimistic in the long term, as the world will be challenged to feed 9 billion mouths by 2050. He noted that by 2030, grain-producing land per capita will drop to a third of what it was in 1950 and in 10 years water needs will be 17 percent higher than water availability.

Hart said precision agriculture -- a catch-all phrase that includes more accurate delivery of farm inputs to crops through the use of data and machine intelligence and information -- is an area of opportunity for dealers. He said the use of "telematics," or vehicle technologies, computer science and the internet, simplify decisions, improve logistics management and increase machine productivity and uptime moving forward.

Lobby on Section 179

On the federal policy side, Hart urged dealers to marshal their producers to urge Congress -- particularly the Senate -- to extend the Section 179 small business expensing and bonus depreciation. This theoretically allows businesses to maximize investments in years when they have a positive cash flow, by taking a greater depreciation amount up-front, rather than following the standard schedule. The amount was set at $500,000 in 2013, but since the beginning of 2014 has fallen to $25,000.

Hart called Section 179 a critical positive benefit to the business, noting investments create jobs.

Precision agriculture panelist T.J. Stauffer, a recruiter for Rich Connell Agri-Search Inc. in Arthur, Ill., helps companies build teams of people to carry precision agriculture forward. He said the industry is just scratching the surface on the use of imagery, going from "multispectoral to hyperspectoral" data. He said the worldwide industry of precision agriculture is expected to grow from $815 million in 2013 to $16.5 billion in 2020.

The people factor

If there is a "chink in the armor" it is that high-tech systems need people to connect the dots of technology, said Stauffer, who surprised some when he said he is seeing a "nasty cycle" of high turnover in the field.

"They love the technology, they love the potential, but they've burned themselves out," he said.

Despite its futuristic image, businesses need to be able to assure precision ag workers that there is potential to move up in their organizations, even though they don't fit neatly into sales or service categories. He advised companies wanting to get and keep employees to improve confidence by over-educating their people and creating specialization where possible.

Zac Paulson, a consultant for True IT, of West Fargo, N.D., urged equipment dealers to understand how their customers interact with technology so they can help balance the "cool versus creepy" aspects of data use and privacy.

Paulson said the cloud, a concept of using a large system of remote servers in networks to store and access data, has advantages. Farmers, however, are going to be interested in who will see and use information generated from their equipment and computers, and what it will be used for. He strongly urged more attention to encryption and password strength to protect information, and noted that companies increasingly are demanding that third-party vendors have strong security systems to avoid cyber security breaches.