http://www.metalcenternews.com RSS feeds for Metal Center News 60 http://www.metalcenternews.com/Editorial/CurrentIssue/July12/tabid/5816/articleType/ArticleView/articleId/7822/MCN-Case-Study-Stripco-Inc.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5816&ModuleID=13972&ArticleID=7822 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=7822&PortalID=51&TabID=5816 http://www.metalcenternews.com/Editorial/CurrentIssue/July12/tabid/5816/articleType/ArticleView/articleId/7822/MCN-Case-Study-Stripco-Inc.aspx Stripco First to Take EPS Plunge Stripco becomes the first domestic service center to invest in EPS, an environmentally friendly alternative to acid pickling developed by The Material Works. Pulling the trigger on the purchase of a major piece of equipment is never an easy call for a service center. Jack Hiler, president of Mishawaka, Ind.-based Stripco Inc., faced an even more difficult decision as he pondered investing in an entirely new processing technology. In late 2011, Stripco became the first independent company in the United States to commission an Eco Pickled Surface “acidless pickle line,” the process developed by The Material Works, Red Bud, Ill., and sold through its sister company Red Bud Industries. The machine is only the third line built, and the only coil-to-coil line in North America. Serial No. 3, as Red Bud calls it, is up and running at Stripco, achieving the same scale removal on hot-rolled black material as conventional pickling, though in a much different way. Unlike pickling, which uses acid to remove dirt and scale from the steel, the EPS system strips the surface clean with a high-pressure spray of a slurry containing steel grit along with a cleaning agent and corrosion inhibitor. EPS is free of the environmental concerns posed by pickling with hazardous chemicals that produce harmful air emissions. The new line is capable of removing scale from hot-rolled black material up to 0.375-inch thick at 72 inches wide and coil weights up to 60,000 pounds. The EPS cell contains eight turbines, four on top and four below, that spray the slurry at equal pressures across the surface of the steel. The full line also includes an entry coil inspection, removal and banding station, entry crop shear, uncoiler, recoiler and filtration system, as well as a Braner precision leveler. Hiler downplays the risks inherent in his investment. While recognizing that TMW has created an entirely new process with EPS, the foundation of the system is a time-tested concept. “Blasting with shot or with grit is 100 years old,” he notes. Hiler initially thought he would purchase a conventional pickler for the Mishawaka facility, rather than sending material out to other picklers for processing. Such outsourcing added time and expense to the process, he said, and the logistics were challenging. “It was becoming a source of frustration.” Conventional pickling lines are expensive, require a lot of space and have about 400,000 tons of capacity. Stripco’s annual need for pickling is only around 100,000 tons. The company considered a smaller 200,000-ton pickler, but the price tag was still nearly 80 percent of the cost of the larger pickling line. Such an investment did not appear to make sense. In contrast, Hiler learned that Red Bud could build an entry-level EPS line with a capacity of 180,000 tons, a nice fit for Stripco’s current capacity while allowing some room for growth. The cost was less than half the price of a standard pickler. Still, the machine would only be useful if its output was comparable to a conventional pickler’s. Hiler was going to need solid evidence of that quality before making the investment. After inspecting numerous samples, and turning others over to large customers for their assessment, he was pleased with the results. “We think the marketplace will be happy with the product,” Hiler says. The test runs also offered another selling point for the EPS system. Stripco runs several high-carbon alloy products, which can be difficult to pickle. “There are items that can only run 10 percent of normal speed because the process struggles to remove the scale. EPS doesn’t differentiate between materials,” says Dean Linders, director of marketing for the Red Bud, Ill., equipment manufacturer. Stripco’s line was installed during 2011, with the first coil run on New Year’s Eve. It is not yet running at full capacity, as operators work to learn the idiosyncrasies of the EPS process. For example, they found that they need a defoaming agent due to some contaminants in the water. EPS proved to work best at a lower temperature, so they installed a cooling tank to chill the water for the slurry. Red Bud is eager to get feedback from Stripco, knowing it will inform their construction of future lines. “Each time you build one, you keep learning,” Linders says. The Material Works has been working since 2007 to perfect the EPS technology, conceived by TMW President Kevin Voges. A toll processor, TMW ran the original line for three years before selling it to a tubemaker in South Korea. By the time of the sale, TMW had learned all it could from the maiden line. Valuable information had been gleaned in the areas of throughput, wear and tear and operating costs, all crucial elements if the technology is to compete in the marketplace. TMW took the proceeds from that sale, and the knowledge gained from its operation, to construct another EPS line. The second line, which runs sheet but not coil, continues to operate at TMW. The company also brought in RBI, with its expertise in equipment manufacturing and relationships with expected customers, to help further develop and market the process. The machine in place at Stripco “is the first real outright sale to a customer,” says Linders. It won’t be the last. Red Bud already has orders from Steel Technologies for a line in Mexico, and Lee Steel for a line near Detroit. Other orders have been placed from China and India. Voges and his colleagues at Red Bud believe the benefits of the process are plentiful. EPS-treated material offers better paint adhesion, reductions in mill surface imperfections and, perhaps most important, corrosion resistance, the company claims. Pickled steel rusts quickly due to the caustic salts created by the chemical process. EPS blasting with a slurry containing a corrosion inhibitor prevents rust from forming even without subsequent oiling, Voges says. In response to skeptics who want their steel oiled “just in case,” TMW guarantees that rust won’t form for up to six months after processing, or the toll processor will buy the material back. Linders foresees the EPS technology finding a nice niche among processors like Stripco that want to offer a paintable product, but don’t have the volume to justify installing a standard pickler. Historically, the process has been restricted to mills, dedicated picklers and toll processors. “The structure of who can do their own pickling will start to change because of this type of system,” he predicts. Hiler holds no illusions about his market leadership as an early adopter. He may be the first into the EPS market, following TMW, but he knows he won’t be the last. “Eventually you’re going to see more of this technology for descaling the product. It’s growing,” he says. Tue, 04 Sep 2012 19:35:00 GMT f1397696-738c-4295-afcd-943feb885714:7822 http://www.metalcenternews.com/Editorial/CurrentIssue/July12/tabid/5816/articleType/ArticleView/articleId/7821/Steel-Success-Strategies.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5816&ModuleID=13972&ArticleID=7821 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=7821&PortalID=51&TabID=5816 http://www.metalcenternews.com/Editorial/CurrentIssue/July12/tabid/5816/articleType/ArticleView/articleId/7821/Steel-Success-Strategies.aspx Ruts in the Road Ahead for Steel? The mood at last month’s Steel Success Strategies conference in New York was fairly downbeat as the steel market faces declining prices and increasing uncertainties. 2012 is developing into a difficult year for steel mills, with macroeconomic developments around the world weighing heavily on steel demand, reported Peter Marcus and Karlis Kirsis, managing partners of World Steel Dynamics, in their remarks June 19 at the Steel Success Strategies conference in New York. WSD co-sponsors the event with American Metal Market. For the remainder of 2012, Marcus and Kirsis forecast the following: • Continued low steel mill orders. • Escalating steel mill production cutbacks. • A lower hot-rolled band export price, driven down by the strong dollar to perhaps as low as $500 to $575 per ton, from about $615 today. • Lower prices for steelmakers’ raw materials. • Reduced mill profits. • Diminishing steel demand in China due to relatively weak fixed asset investment. “Folks, we are on the steel price roller coaster. The magnitude of the price decline will be a function of how much of a fall there is in iron ore, coking coal and steel scrap, all of which we think will come down,” Marcus told the crowd of steel industry executives. Striking a more positive note, he said demand and pricing could spike temporarily in the fourth quarter as service centers and other steel buyers replenish low inventories. Compared to the rest of the world, the United States economy has fared relatively well. It remains largely unscathed by the euro zone sovereign debt crisis. It continues to add jobs, led by a strong manufacturing sector, though unemployment remains disappointing. And the auto industry has rebounded from its near-death experience to become one of the market’s strongest sectors, with sales of 13.7 million vehicles forecast for 2012. WSD estimates that steel demand in the United States will rise by 6.6 percent to 105 million tons this year, up from 99 million tons in 2011. Offering a bullish forecast for 2013, the analysts predict steel demand will rise another 5 percent to 111 million tons. Forecasting longer term, the two analysts gave equal odds to two very different potential outcomes for the steel market in the next five years—a very fast-paced “open road” scenario and a very bumpy “rutted road” scenario. Presenting their more optimistic, open road scenario, Marcus and Kirsis described a future in which global GDP grows 3.5 to 4.5 percent per year. There is less fear of financial crises and a euro zone contagion spreading to other parts of the world. The U.S. becomes increasingly energy independent because of the availability of reasonably priced natural gas. Global steel demand grows at a healthy annual rate of about 3 percent. Iron ore, coking coal and steel scrap prices remain at relatively high levels. Equally plausible is a “rutted road” for steel, Marcus said. “We think that the constraints to global growth will be substantial and that there could well be a U.S. dollar crisis.” The next four or five years could see lagging fixed asset investment resulting from tight money conditions and higher interest rates. Such construction activity and capital spending account for about 85 percent of global steel demand. China’s growth could slow and become less steel intensive. Far lower iron ore and coking coal prices and depressed scrap prices could drive the price of steel down to unprofitable levels. Cheaper raw materials would narrow the spread between low-cost and high-cost producers, creating even more price competition. Merger and acquisition activity could accelerate as losing steel companies and raw material suppliers seek to sell out. “The rutted road scenario to the future is the consequence of substantial economic and political constraints along with the risk of financial crises, which may prevent any sizable expansion of global steel demand in the next half decade,” Marcus said. World Steel Dynamics is a strong advocate of steel futures trading as a means to ease market volatility, though the concept is opposed by many mill executives. “Mills that help their customers hedge the price risk will gain market share and an improved profit margin, in our opinion. The panacea for the steel mills globally to regain their pricing power is not concentration, it is liquid steel futures,” Marcus said. Tue, 04 Sep 2012 19:31:00 GMT f1397696-738c-4295-afcd-943feb885714:7821 http://www.metalcenternews.com/Editorial/CurrentIssue/July12/tabid/5816/articleType/ArticleView/articleId/7820/Specialty-Steel-Outlook.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5816&ModuleID=13972&ArticleID=7820 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=7820&PortalID=51&TabID=5816 http://www.metalcenternews.com/Editorial/CurrentIssue/July12/tabid/5816/articleType/ArticleView/articleId/7820/Specialty-Steel-Outlook.aspx Stainless Market’s ‘OK’…But for How Long? Demand for specialty steel improved in the first half, but most factors point to a slowing business climate in the coming months. By Myra Pinkham, Contributing Editor Through the first five months of the year, the United States was the strongest market for stainless steel. Such a distinction is as much an indictment of the rest of the world, however, as it is a point of favor for the U.S. A slowing economy, uncertainty about global markets and falling raw material prices threaten the near-term prospects for specialty metals suppliers. The result is a tepid market one service center executive described as “OK, but only OK.” The momentum the U.S. stainless market experienced in the first quarter is fading, compared with the very strong market a year ago, says Markus Moll, managing director and senior market research analyst for Austria’s Steel & Metals Market Research. After seeing apparent consumption grow by about 26 percent in 2011, it currently is down about 2.7 percent year on year, says Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. Experts point to some positives in the U.S. stainless market, led by a fairly strong manufacturing economy. May’s U.S. industrial production, while down a slight 0.1 percent from April, remained 4.7 percent ahead of year-ago levels, bolstered in part by the re-shoring of certain manufacturing that had been outsourced to Asia. “As they are working to develop a middle class, it is becoming more expensive to do business in China and India,” says Bob Mraz, vice president of sales and marketing for TW Metals Inc., Exton, Pa. “There is also the issue of quality and the difficulty in doing business there. As that delta narrows, people are bringing some work back to the United States. It isn’t all of the manufacturing that had been outsourced or even a preponderance of it, but it is a decent amount.” Dennis Oates, chairman, president and CEO of Universal Stainless & Alloy Products Inc., Bridgeville, Pa., says he perceived a marked change in his customers’ buying patterns beginning in May. Oates also serves as vice chairman of the Specialty Steel Industry of North America, Washington, D.C. “Earlier in the year, buyers had become a little overoptimistic, but they are now trying to get their inventories back to more comfortable levels.” The usual summer slowdown kicked in a little earlier this year, likely prompted by concerns over the ongoing European debt crisis, the easing of growth in China and India, and the political gridlock preceding the U.S. presidential election, says Bill Sales, senior vice president of nonferrous operations at Reliance Steel and Aluminum Co., Los Angeles. “I’m not sure how much of the slowness we currently are seeing is due to falling prices or to weak demand,” he adds. Underlying demand in the U.S. is fairly steady, especially for contract business, says Brad Hite, president of Stainless Sales Corp., Chicago. Actual demand is comparable to a year ago, Moll agrees, with even the lagging building and construction market seeing slight improvement. The problem is the gloomier economic outlook worldwide, says Carl Moulton, senior vice president, international, for Allegheny Technologies Inc., Pittsburgh, who is chairman of SSINA. “Also you cannot overemphasize the effect of the drop in nickel prices, which tends to create a short-term disruption in the market,” he adds. The average London Metal Exchange nickel cash price for June fell to about $7.54 per pound from the most recent peak monthly average of $11.04 per pound in February, taking the price of stainless down with it. This is the lowest nickel has been since the fourth quarter of 2009, notes Amy Bennett, principal steel consultant for Metal Bulletin Research. “Our biggest concern is when nickel will hit bottom,” Hite says. Declining stainless transaction prices have put pressure on margins. “I’m just praying that once it does, our shipment tonnage will remain high.” Much of stainless steel’s strength last year was due to service center restocking, but stainless inventories at U.S. distributors were down about 10 percent year to date through May due to caution about the future, Moll says. Service centers have cut inventory levels to a very lean 2.5 months of supply and, with prices still trending down, are unlikely to build them back up any time soon. In fact, Reliance’s Sales says many would like to work them down even lower in the current pricing environment, where raw material surcharges have been falling and are expected to decline once again in July. “Buyers are looking to wait another month or two so that they can get the lowest price,” Oates says, noting that mill lead times have shortened a little as a result. Meanwhile, service centers and their OEM customers continue to live hand to mouth, just buying what they need. With mill lead times of just six to eight weeks, there is no need for distributors to bump up inventories, Sales says. Service centers have been buying metal mainly among themselves—from master distributors or competitors vs. buying forward from the mills, Moll says. Confirming that trend, Mraz notes that TW Metals has seen a robust increase in business from other, smaller distributors. Such inventory sharing and destocking cannot continue much longer, predicts Moll. He sees a possible pickup in the fourth quarter, both domestically and globally, prompted by the new Chinese stimulus package. “Nickel pricing could find strong floor level resistance at about $7.25 per pound. I think we have seen the trough and that there will be some restocking in the fall.” Despite the current slowing of business activity, true underlying demand continues to hold up in a number of end-use markets. Energy, petrochemical, automotive, aerospace and power generation all have shown signs of strength. Consumer- or construction-related sectors, such as appliances, food service and kitchen sinks, have been weaker, suppliers report. Moll says the strongest driver of stainless steel demand probably has been the chemical and petrochemical process industries. Shipments of pipes and tubes used by that sector have increased about 40 percent year on year. The energy and power generation markets also are booming, according to Plummer at Metal Strategies and Oates at Universal. Energy pipe and tube is up about 33 percent over 2011, Plummer says. The pickup in power generation demand, coupled with low natural gas prices, is leading to improved orders for land-based gas turbines, Oates adds. Hite is particularly bullish about the automotive market use of stainless alloys with the push for more efficient, lightweight vehicles. Some of the normal summer auto shutdowns have been shortened or canceled, promising increased demand for materials of all kinds. North American automotive production was up a very impressive 20.9 percent year to date through April, Plummer reports. Based on announced auto production schedules, full-year 2012 light vehicle output could grow 17 percent to about 14.9 million passenger cars and light trucks, the highest it has been since 2007. Production could hit 15.4 million vehicles next year, each of which contains 50 to 60 pounds of stainless on average, most going into exhaust systems. Other transportation markets, including rail cars and truck trailers, also are holding steady, suppliers say. Companies that have held off on purchases will soon have to replace aging truck trailers. With the economy gradually turning around, there is a need for more rail cars to accommodate the freight being shipped. The appliance market is normally a major user of stainless steel, but appliance demand continues to bounce along the bottom, hurt by a housing market that remains 75 percent below 2005 peak levels. According to the Association of Home Appliance Manufacturers, domestic shipments of washers, dryers, dishwashers, refrigerators, freezers, ranges and ovens were down 6.3 percent year to date through May, compared with the first five months of 2011. Hite applauds the mills’ attempt to increase base prices earlier in the year. Given the declining nickel prices, the market needed the increase, he says, even at the risk of attracting more Asian imports that could drive prices back down. Deterring low-priced imports is a new surcharge formula adopted by the major flat-rolled stainless mills late last year, which narrows the window of visibility to just one month vs. two months previously, Moll says. Stainless buyers are less likely to risk ordering long-lead-time foreign steel when they can no longer see that far forward. The ramp-up of the new ThyssenKrupp Stainless USA mill in Calvert, Ala., has had a similar effect as its output is displacing some imports (including from its parent and sister companies), as well as steel from domestic competitors, he adds. Nevertheless, import license data shows total stainless imports were up 11.2 percent in May to 115,636 tons, compared with 103,959 tons a year earlier. The same import license data through June 8 shows the uptrend continuing. Allegheny Technologies spokesman Dan Greenfield says this surge of imports, as well as the current economic outlook, has made it difficult for domestic stainless mills to raise base prices. Moll says this recent increase in stainless imports was the result of orders that had been placed earlier in the year when the market was stronger, which bodes well for a tapering off of imported stainless in the next few months. “No one wants to take a chance on the long lead times of imports with the relatively low U.S. price for Type 304 cold-rolled coils, which is about $400 below the Chinese price,” Moll maintains. Hite says his company, like other service centers, is looking to buy imports directly from the foreign mills to get a better buy. “When you buy through brokers, the price is close to the domestic price,” and is usually not worth the risk, he says. In general, the mills have been trying to stick to their guns with the base price increases they announced a few months ago (through a 2 percent reduction in their functional discount). That’s especially true when it comes to smaller volumes, Sales says, though there has been room for negotiation with larger orders. Some observers express concern about how new production capacity may affect pricing, given the additions at ATI and the ramp-up of the Calvert mill, which is expected to be acquired by Outokumpu with the rest of ThyssenKrupp’s Inoxum unit. (Both ThyssenKrupp and Outokumpu declined to comment for this article.) Moll says the market already faces overcapacity, but he doesn’t think the new production will have a major impact. ATI’s capacity won’t come on line until next year and will be more focused on premium products rather than commodity grades, while the effect of the ThyssenKrupp ramp-up will be limited. “No one makes capital investments if they feel they can’t sell steel,” ATI’s Moulton says. “Supply and demand might be out of balance in the short term, but the investments have been made with the long term in mind.” Tue, 04 Sep 2012 19:28:00 GMT f1397696-738c-4295-afcd-943feb885714:7820 http://www.metalcenternews.com/Editorial/CurrentIssue/July12/tabid/5816/articleType/ArticleView/articleId/7818/Agricultural-Equipment-Outlook.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5816&ModuleID=13972&ArticleID=7818 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=7818&PortalID=51&TabID=5816 http://www.metalcenternews.com/Editorial/CurrentIssue/July12/tabid/5816/articleType/ArticleView/articleId/7818/Agricultural-Equipment-Outlook.aspx Farmers Rolling in the Green Ethanol production and other developments in alternative energy, coupled with strong demand for traditional crops, is keeping farmers busy—and in the market for new equipment. For generations, the success of America’s agricultural industry has been built on two Fs: food and fiber. Farmers grow food, either for direct consumption by the population or to feed livestock, and they grow fiber for use in clothing and other vital materials. In more recent times, a third F has entered the mix—fuel—as the nation seeks new alternative forms of renewable energy. Combined, these three essential needs account for the strong ag—and ag equipment—market that producers report today. “We do not, and the people we follow do not, anticipate a change in the fundamental market drivers of food, fuel and fiber,” says Bill Preller, senior director of specialty business for Case IH, Racine, Wis. “With stability in that arena, you have stability in the ag commodity business—soybeans, wheat, you name it.” Stability in commodity prices means American farmers are making money. When farmers have money, farmers buy tractors, combines and other pieces of steel-intensive heavy equipment. “Fundamentally, our business is driven by net farm income,” says Todd Stucke, director of marketing for hay and harvesting for Agco Corp., Duluth, Ga. “When net farm income is strong, in whatever segment, it usually is reflected in equipment sales. And we’ve been blessed with strong commodity prices.” Like other industries, farming was hurt by the recession, although the decline was more modest and the rebound far more robust. In the United States, net farm income in 2011 topped $100 billion for the first time. That number is expected to dip in 2012, but still remain well above historical norms, according to the U.S. Department of Agriculture’s Economic Research Service. The early signs bear that out. “It’s not as strong as it was a few months ago, since we’ve seen a little lull in the economy,” says Richard Robinson, president of Norfolk, Neb.-based Norfolk Iron & Metal, a supplier to the ag equipment market. “But it’s still stronger than the rest of the economy.” Gerald Brockman, vice president of sales and marketing for O’Neal Steel, Birmingham, Ala., also sees demand from equipment customers flattening over the next 6-12 months. “Most OEMs expect gradual increases in production in 2013,” he adds. CNH, Case IH’s corporate owner, anticipates some modest growth this year, with total global (and North American) ag equipment sales up 5-10 percent. Through the first quarter, equipment sales were up 18 percent compared to 2011. “It’s not a huge bump, but it is continued strength in an already strong market,” Preller says. In its May Flash Report, the Association of Equipment Manufacturers reported that total farm tractor sales in May (including both two- and four-wheel drive models) were up 12.7 percent to 19,457 units, while larger models alone were up 5.4 percent to 430 units. Total tractor sales through the first five months of the year were 6.9 percent ahead of the same period in 2011 at 72,019 units, though sales of the larger four-wheel drive models were slightly behind last year’s pace at 2,368 units. Combine sales, in contrast, were down 33 percent through May to 2,421 units. “That’s more an indication of market saturation,” says Charlie O’Brien, vice president of agriculture services for Milwaukee-based AEM. “Everybody’s got newer equipment in the field, so there’s not the demand there once was.” On the food side, the chief fundamental strength is in the developing world. Countries around the globe are leaving the third world behind, and the first step in that journey is an improved food supply. “Demand growth, now and in the future, is because of the developing countries. They’re looking for more meat and milk in their diets, and that means more grain and equipment to harvest it,” says AEM’s O’Brien. The desire for improved sources of food benefits the United States in several ways. The U.S. is already the most efficient agricultural producer in the world, and thus enjoys a healthy market for its exported goods. Moreover, nations looking to provide for themselves need the tools to become more efficient producers. “Arguably the best farm equipment in the world is being made in the United States, technologywise, conveniencewise and life-cycle wise,” says Bill Hickey, president of Lapham-Hickey Steel, Chicago. Experts are confident that the political and economic stability in the United States, relative to the widespread instability in other parts of the world, ensures that demand for American agricultural products and machinery will remain high for the foreseeable future. On the alternative energy front, work continues to turn crops, or crop byproducts, into sources of power. Whether its biodiesel from soybeans in the Midwest or ethanol from sugar cane in the Southeast, the possibilities are many for a country (and a world) starved for fuel. While ethanol’s emergence was aided greatly by government subsidy, Preller says, the industry is now ready to stand on its own. “The true market fundamentals of ethanol as a viable fuel are solid, and it’s going to continue to support growing crops as a fuel source.” “The trend we’re seeing is the demand for residue,” adds Stucke. “We’re seeing some cellulosic ethanol plants coming about, and their raw feed stock is residue, either corn fodder or switch grass.” These new fuel sources may pose different challenges to the equipment manufacturers than the original ethanol production. “The majority of ethanol is produced from corn, and corn production and the equipment required for it is already a core competency,” says Preller. Use of unconventional feed stocks may result in the need for different types of equipment, or for existing equipment to do more. But that’s nothing new. As in other industries, the equipment manufacturers are in the middle of a technological revolution, with new developments to improve farming being announced regularly. One example is telematics, in which the tractor or combine sends diagnostic data back to a central office, allowing farmers to identify potential equipment trouble before it becomes a major issue. Other developments help farmers improve logistics, map yields and even operate vehicles with no driver using GPS technology. “Isobus is the biggest buzzword right now,” says Paul Williams, project manager for Kubota, a small tractor specialist. While most modern farm equipment is governed by onboard computers, the isobus connectivity allows pieces of machinery to communicate with each other—a grain wagon telling a combine when it is full, for example. The biggest hurdle is getting this kind of integrated performance across different brands of equipment, Williams says. One area every equipment manufacturer has been working extensively is engine efficiency. As with other industries that rely on internal-combustion driven machines, the ag industry is faced with daunting new emissions restrictions. In January, Tier 4 Interim requirements were put in place, with Tier 4 Final requirements expected by 2014. The new air-quality standards are a mixed blessing for the industry. While it will lead to cleaner-burning engines, it also will add to their cost, say equipment vendors. Case IH sees the new requirements as a marketing opportunity. Preller says the company has developed a new unit that is compliant on emissions while being 10 percent more fuel efficient than its predecessors and its competitors. “We’re going to continue to use the same technology going into the Tier 4 Final that rolls over in the next few years. It’s nice when you can do environmental good work and economic good work,” he adds. Environmental regulation is not the only area where the federal government influences the agriculture market. The industry is anticipating congressional adoption of a new farm bill that contains some major changes, including changes to subsidies and direct payments to farmers. “The expectation is the direct payment will be gone. Our position is to make sure there’s a safety net when it’s needed. That’s crop insurance,” says O’Brien at the equipment manufacturers association. Last year’s drought in Texas is an example of why insurance is needed. Farmers there lost all their crops and had to get rid of their cattle. Without farm insurance, they’d be looking for a new line of work. “If you don’t have a safety net to provide some protection, you could put farmers out of business. And that takes food production out as well. To have a safe and plentiful supply of food, you need to protect your farmer in the event of a catastrophic incident,” O’Brien says. Given the current favorable weather and economic conditions, production of farm equipment is booming. In fact, in some areas it is being constrained by the supply chain. Some components that go into farm machinery, such as tires, are close to being “tapped out” as their makers work at full production, Preller reports. “It’s in line, but we’re not going to have dramatic growth. We’re utilizing the supply chain capacity that exists.” As problems go, that’s not the worst one to have, which is one reason Preller and others are so optimistic. “The real question for your readers is are these equipment manufacturers going to continue to use steel?” he asks. “The answer is yes.” Tue, 04 Sep 2012 18:21:00 GMT f1397696-738c-4295-afcd-943feb885714:7818