The Right Equipment
September 12, 2008 At first glance, the custom application category is growing by leaps and bounds. Since the category dropped 14% in sales in 2004, it has been on an impressive winning streak. In the 2005 CropLife® 100 survey, custom application revenue jumped ahead 24% to $608 million. This year, sales were up an almost identical 23% at $747 million.
For the most part, retailers credited a reverse of the trend of grower-customers doing their own custom application work and the continued growth of precision agriculture for this gain. However, not everyone agreed.
“Our custom application grew, but most of this was post spraying and much of it in July,” says Jim Shelton, agronomy division manager for Landmark Service Cooperative, Cottage Grove, WI. “This helped income, but applicators lost even more of their summer enjoyment.”
The High Cost Of Fuel
Of course, this revenue picture for custom application would have been even brighter had retailers not given much of their profits back to fuel up their equipment. According to the data collected in the 2006 CropLife 100 survey, 99% of respondents thought that higher fuel prices were having a very negative or somewhat negative impact on their bottom lines. This was up significantly from the 2005 survey totals, where only 53% of respondents indicated higher fuel prices were very or somewhat negative.
“Energy prices, combined with increased equipment cost, continue to squeeze our bottom line,” says Shelton.
To make up this shortfall, many retailers have passed this added cost on to their grower-customers. According to the survey, 46% were charging more to recoup their higher fuels costs and another 23% have added a surcharge for fuel to their grower-customer bills.
Instead of charging more, some retailers are looking to join the biofuels movement themselves. According to 2006 CropLife 100 retailers, 18% are exploring the use of biodiesel in their equipment fleets and 3% are looking at ethanol. Another 31% are looking at both biofuel alternatives as an option to reduce their fuel expenses.
Ag-Chem On Top
In terms of what equipment CropLife 100 retailers are using in their custom application businesses, there is one manufacturer that stands out against the competition. When asked what brand name of equipment was being used by their operations, 81% of respondents listed Ag-Chem Equipment products as the primary members of their fleets. Providing even more market share pull for Ag-Chem’s parent, AGCO Corp., 33% of CropLife 100 retailers have Spra-Coupe equipment in their fleets and 2% use Willmar sprayers.
In virtually a tie for second place among custom application equipment brand names were Case IH at 54% and John Deere at 53%. Other manufacturers getting check marks in the 2006 CropLife 100 survey included GVM at 18%, Miller Application Equipment at 12%, Hagie Manufacturing Co. at 7%, and Equipment Technologies at 2%.
Moving into 2007, CropLife 100 retailers are confident the custom application category will continue to enjoy robust sales. According to several respondents, the expected push toward biofuels will translate into more business for their application operations. “Ethanol should increase corn acres, which will be good for us,” says Dennis Montavon, general manager for Effingham Equity, Effingham, IL.
Perhaps more telling of this level of confidence is the percentage of retailers that are planning to make additional equipment purchases during the 2007 growing season. According to the survey, 55% of CropLife 100 retailers plan to buy new equipment in the coming year. Another 6% are looking to fill fleet gaps with used equipment. Twenty-nine percent are considering buying both new and used equipment in 2007. Only 10% of respondents said they have no plans to buy equipment in the new year.
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