Hot News

2.12.2008

MIDDLETOWN, Del. — Last week, Randy Baker, Case IH president and CEO, and Jim Walker, vice president of North American agricultural business, visited Hoober Inc.’s Middletown, Del., store for customer appreciation day. During their visit, The Delmarva Farmer posed these questions to the two executives:
The Delmarva Famer: How does the global market for farm machinery differ from the North American market?
Randy Baker: The difference from North America to Europe or Latin America is North America is really caught in the energy boom right now of really requiring domestic sources or energy. So it’s really turned a lot of farming operations in most of the United States, not necessarily in Delaware or this particular part of the country, but it’s turning them into the energy business and that’s why you’ve seen such a growth in the pricing of corn and even soybeans have been effected. Even wheat. It’s having an effect on all of them and the reason for that is there’s a new consumption source.
As I’ve said to a lot of farmers, ‘You’re in the energy business now, so you’ve got to look at it that way.’
The same thing has hit in Brazil. Not so much in Europe because of the types of farming and the types of fuel sources there are much different, but certainly in the United States and Brazil this has been a major impact.
The Delmarva Famer: The rise in commodity prices offers farmers more profitability. Does Case IH expect some of that profit to be spent at dealerships? How is Case IH adjusting to the market changes?
Randy Baker: Certainly there are increase input costs throughout the whole farming process. You’ve got higher energy costs you’ve got higher fertilizer costs because that’s all petroleum based, seed costs certainly have gone up a bit because seed producers are raising some prices and then the big one that people have noticed is land costs have climbed. The land rent costs are definitely jumping up. So if you think about the big increase in commodity prices, somewhere around 60 to 70 percent of it should stay on the farm and a lot of big farms that I’ve on been on in the last year and a half are really looking at much better profitability. Better than they’ve had in maybe 20 years.
I think they’re going to use it to leverage debt. They certainly will invest in new equipment, some of them will be investing in new property, but I think in general it will be a much healthier farm in terms of their own profitability.
Jim Walker: First of all it’s going to change people’s buying habits. You’re already having manufacturers say that they’re trying to sell product that’s going to be manufactured in late ’08 or the beginning of ’09 just because there is a fixed capacity that’s out there that’s going to be built. And people are having to own up earlier and commit earlier.
Secondly, for us, it’s going to make one of the biggest costs in the business, which is your product, your asset, it’s going to make that much more manageable. So it’s going to help the manufacturers become better marketers and become more profitable also. All manufacturers. So it’s going to mean change to us manufacturers and the customer.
What I’ve seen in the business is it takes a little while for net farm income to get into the market — 12, 18 months or so — before you see people really start to consistenly spend it and of course this all started about 18 months ago or 16 months ago and I think we’re just now seeing the onslaught, the beginning of truly expendable cash that farmers are going to have to put into farm machinery. Typically early on, they’re going to buy all their inputs, they’re going to hedge their inputs, they’re going to look at their operational loans and those types of things and put themselves on solid financial ground in input costs. And now is where it comes our way a litlle bit more, but even though last year with a super year in the business for all the manufacturers that’s what’s going to cause some shortages from the standpoint of product availability.
The Delmarva Famer: There has been dealer consolidation in this Mid-Atlantic region. How does this consolidation help the farmer? Does CaseIH provide a different approach to consolidation than the other manufacturers?
Randy Baker: Big dealers tend to be healthier in terms of their ability to serve their customers because, if you think about a single store dealer, unless they have a huge number of farms around them, it’s difficult for the them to have 50 service trucks and $2 million in parts and 24-hour service. But once dealers get bigger and bigger they can afford to do that. They share the inventory between the branches, they have more people that are trained. No matter what they’re going to get you running. So it is a healthy progression for dealers to get bigger. By no means, though, are we saying to our distribution, ‘you have to grow.’ It’s simply a matter of economics and good business sense that allows dealers like Hoober’s or any other big distributors to buy and become larger distributors.
The Delmarva Famer: Is there anything coming in the future that you can tell us about?
Randy Baker: We’ve got a new combine coming out. We’ve got a new series of tractor coming out. We’ve got a new sprayer coming out.
Our annual R&D budget is around 3 percent of our volume. So you’re looking at somewhere in the neighborhood of $230 million a year spent in R&D, that’s new products every year. And that’s an investment we’ve made for many many years. And you’ll see it probably for the next 15 years a strong pipeline of products coming out.