EARLY restructuring of the global farm machinery industry looks to be an important area of distinction between agriculture and north America’s ailing car industry, according to Case IH brand director David Pedersen.
Heading up CNH Global’s ‘red’ arm in Australia (its ‘blue’ arm being New Holland), the underlying suggestion is that restructuring of the giant US auto industry should have taken place many years ago.
“We (the global farm machinery industry) look to have taken our medicine earlier,” Mr Pedersen said.
This is a reference to the mergers and acquisitions that have impacted on most of the farm mechanisation industry’s leading players in the past decade.
Out of this shake-up, they pared back costs through rationalisation programs.
“We have had to adapt to, for instance, our Australian dealers and their customers organising their businesses by finding a recipe for structural profitability that allows them to weather these cycles (drought and economic downturns),” Mr Pedersen said.
“Now Case IH Australia has a very buoyant outlook for 2009,” Mr Pedersen said.
“The proposed Federal Government business tax break for equipment purchases is creating a lot of interest,” he added.
“There’s no doubt that potential customers who have the ability to capitalise on that opportunity have taken that into consideration by, perhaps, bringing some business forward. (See separate story on tractor sales lift).
But Mr Pedersen says the sales environment in Australia is “significantly different” from the situation overseas, underscoring how tractor sales in this country are “no weaker” than they were last year.
He says, however, the world’s continuing demand for food continues to underpin not only agriculture but also farm machinery businesses, despite fluctuations in commodity prices.
“Fundamentally, there is still a strong demand for what our customers produce,” Mr Pedersen said.
“Agriculture is quite different from the car industry because the consumers who buy cars have been hit by loss of wealth, by deteriorating property values and now by unemployment.”
There’s no denying, however that the halcyon pre-global financial meltdown business environment is over – as evidenced by CNH’s 2009 first quarter loss which demonstrate just how quickly the current economic conditions impacted on its recent performance.
Global predictions for the year ahead are for ‘over-40hp’ tractor sales to be down by between 10 to 15 percent and sales of ‘under 40hp’ tractors to fall by 25 percent.
Combine harvester sales are forecast to be down by between 25 to 30 percent.
“Clearly it’s a mixed bag,” he said of the farm machinery industry’s global markets where demand for broadacre products remains positive in North America, less so in western Europe while the once strongly-performing Commonwealth of Independent States (CIS) and eastern Europe markets have all but dried up.
Meanwhile, vice president and managing director of Agco’s East Asia Pacific division, Warwick McCormick, underscores how the economic well-being of the global farm machinery manufacturers bears little if any comparison to the beleaguered position of car industries around the world.
“There’s no doubt that ag demand has slowed down but the difference is that long-term people need to eat, and while commodity prices are a little bit down, no one can see demand for cars increasing in the next five years or so,” he said.
Optimism in Australia centered on good planting rains falling, notably in Victoria and South Australia, plus the previously mentioned Federal Government business tax break for equipment.
Interestingly, those farmers buying equipment ahead of the initiative’s June 30 deadline will not suffer delays in accessing product since inventory levels have steadily been building.
The long lead times associated with obtaining tyres and hydraulic components at the tail end of the mining boom have been “completely reversed,” according to Mr McCormick.
“If we get a half decent season, then the future’s not all bad,” he added.
As far as the big picture is concerned, Agco, which lays claim to being the world’s third largest manufacturer of tractors and headers, is predicting “softer’ sales of high horsepower tractors and headers during the remainder of 2009 – in line with reports from other manufacturers.
Meanwhile, Deere and Co’s chairman and chief executive officer, Robert W. Lane, continues to sound upbeat, believing commodity prices will remain “healthy” during 2009 with fuel and fertiliser costs likely to moderate.
However, he says sales of certain types of equipment are expected to be down significantly for the year, principally small tractors, cotton equipment and machinery used by livestock producers.
Nevertheless, the impacts of the global economic crisis most obviously surfaced when Deere which last month placed 160 employees of its Des Moines factory on “indefinite layoff” due to reduced market demand for its products.
All this took place despite an 18 percent lift in its farm equipment sales when comparing the first quarter of 2009 with the same period last year. Worldwide sales of the company's farm equipment are forecast to decrease by about 2 percent for full-year 2009.
"Though restrained by the current recession, positive trends that support our businesses, such as global demand for food and infrastructure, remain intact in our view and continue to hold great promise," Deere and Co’s chairman Robert Lane said.
Email a friend