In this episode of On the Record, brought to you by Associated Equipment Distributors, we look at how the latest round of interest rate cuts will impact dealers’ floorplan payments. In the Technology Corner, Noah Newman talks autonomy with Monarch Tractor. Also in this episode, some additional insights on when we might see full autonomous adoption and AGCO reports a drop in 3Q revenue and a big cut to production plans.

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TRANSCRIPT

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Fed Cuts Interest Rates by Quarter Point

On Thursday, the Federal Reserve cut its key interest rate by a quarter point in response to the steady decline in inflation. This cut followed a half point reduction in September. The Fed’s benchmark rate is now about 4.6% — down from a decade high of 5.3% before the September meeting.

High inventories on dealers’ lots have come with high interest payments. Following the September cut, George Russell, a founding member of the Machinery Advisors Consortium, said that a typical $30 million floorpan debt would see a $150,000 benefit. This latest cut would add another $75,000 for a total of $225,000.

“The point is,” he said, “That is not much in a dealer with $30 million of floorplan debt.”

Ahead of this latest cut, Kyle McMahon, founder and CEO of Tractor Zoom, had laid out the following annual interest rate savings for equipment dealers at the previous 50 basis points cut and the 200 bps cut that is expected in the next year.

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Dealers with 10+ stores currently have $4.0M avg inventory/location - save $20k at 50 bps and $81k at 200bps.

Dealers with 1-9 stores currently have $2.8M avg inventory/location - save $14k at 50 bps and $57k at 200 bps.

A dealership with 20 locations has $80 million of inventory and will save $1,620,000 in interest starting next fall, he said.

Speaking at a news conference, though, Fed Chair Jerome Powell said that “in the near term, the election will have no effects on our (interest rate) decisions.”

In other financial news, on Nov. 7, all the ag machinery companies Baird analyst Mig Dobre follows were rated Outperform. That includes AGCO, Alamo Group, CNH Industrial and Deere.

Dealers on the Move

This week’s Dealers on the Move include SunSouth and AgRevolution.

John Deere dealer SunSouth opened a new dealership in Columbus, Ga. The dealership has 21 locations across Alabama, Mississippi and Georgia.

AGCO dealer AgRevolution opened its 4th and 5th locations in Urbana and Circleville, Ohio, in the last month.

What are the Top 5 Applications in Autonomy Right Now?

There was plenty of technology on display at the World Dairy Expo in Madison, Wis., a few weeks ago. Farm Equipment editor Mike Lessiter caught up with Monarch Tractor’s John Issacson and got his take on the top 5 applications in autonomy right now. His top 5, in order, are: dairy industry, open area mowing, vineyards, specialty crops and orchards.

“Number 1 is definitely the dairy industry. The dairy industry has kind of caught us off guard but is about 5 times larger than we were told it’s going to be. It’s a promising industry. Part of that drive is because it’s a 24/7 business. If you’re using something 24/7, it’s very easy to send out that ROI. If you’re having energy efficiency or savings, and savings on labor, that’s easy to calculate out. Dairy is almost a perfect scenario for autonomy because it’s a pretty controlled environment.”

“Number 2, I would say open area mowing in southern states. If you get down to parts of Florida, you’re talking about 11 months of mowing grass. Southeast Texas, they’re mowing grass 10-12 months out of the year.”

Catch our full interview with John on PrecisionFarmingDealer.com.

Autonomy’s Timeline for Adoption

Continuing with the autonomy theme, the topic came up during a technology panel at the Farm Equipment Manufacturers Association Fall Convention in Dallas.

Colin Hurd, founder of SmartAg, the first retro-fit driverly tractor automation system, says we’re a ways away from what he calls “set-it-and-forget autonomy,” He ventures we’re 5-plus years out for a lot of autonomous applications.

“I think we're a lot closer to one person being able to run four or five machines at the same time, or the combine operator managing the grain cart."

“I think you'll create really meaningful value very quickly and not have all of the liability concerns that sometimes surround autonomy. So that's what I think is near-term. I think you'll see a lot of that coordinated fleets, multi-machine, in-field coordination with people on-site still."

Chris Hunsaker, co-founder and CEO of Acuitus Ag, agrees and predicts we'll see a mixture of things happen.

“Personally, coming from the implement space in the past I look at the autonomy as... Depending on what your implement is and how complicated it is, it might be really difficult to fully automate everything that happens on that machine."

“But you can look for high-value add automation you can introduce that makes it easier for the operator or gets you a better outcome. And so if you're capturing the data from your machine and it's used, that can inform and de-risk some of the creation of that automation for you."

“And then yeah, the future of a mixed fleet where you have... Depending on what your farm is and what you're doing, you may have certain things that are fairly autonomous and you have other things that aren't. There's got to be some kind of a management layer on top of that that allows that stuff to coexist in the same space."

Dan Rauchholz of Farmada looks at autonomy as “evolution instead of revolution.” He says we’ll see autonomy come in a step-by-step progression rather than a big rapid change. Before you know it, he says, everything’s running by itself robotically or autonomously.

AGCO 3Q Net Sales Drop 24.8% 

AGCO reported its third quarter results on Nov. 4. Third quarter net sales dropped 24.8% to $2.6 billion. Meanwhile net sales for the first 9 months of the year came in at $8.8 billion — down 17.3% year-over-year.

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Regionally, South American sales took the biggest hit in the first 9 months at down 42%, followed by North America at 20.4%. Europe/Middle East sales dropped 18.2% for the period and Asia/Pacific/Africa sales were down 11.7%.

J.P. Morgan analyst Tami Zakaria noted that management said the third quarter represented the largest year-over-year production cuts the company had taken in over a decade by at least 35%.

AGCO cut production guidance and sees underproduction likely through at least the first half of 2025, she said writing, "In efforts to manage inventory levels, AGCO cut global production by 35% in 3Q, which was 19% more than it anticipated. Notably, in South America the company cut production levels by >50% YoY in the quarter. Looking ahead, additional cuts are expected in 4Q and in 1H25 as FY production is now guided down ~25% vs. prior down 20-25%

DataPoint: Dealers Forecast Service Revenue Growth in 2024

This week’s DataPoint is brought to you by Ag Equipment Intelligence’s Executive Briefing.

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According to the 2024 Dealer Business Outlook & Trends Report, 49.4% of dealers are forecasting their service revenue will increase at least 2% in 2024 vs. 2023. Just under 17% are forecasting service revenues to be down this year. The full Dealer Business Outlook & Trends report will be released later this month.

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