QUOTE AND NEWS
Agrimoney.com  Sep 26  Comment 
The silos-to-logistics group, attempting to draw a line under durum losses, is to see its crop volumes near-double, backed by new capacity too
Insurance Journal  Sep 23  Comment 
The U.S. Department of Agriculture has named 24 Louisiana parishes and two Texas counties agricultural disaster areas because of last month’s storms and flooding. Eleven parishes are primary disaster areas, and the others are adjacent to them,...
Motley Fool  Sep 23  Comment 
The chemical giant is throwing resources at its agriculture business at the expense of its other units -- which might be a boon for rival 3M.
Biomass Magazine  Sep 21  Comment 
More than 50 groups in the energy, agriculture, transportation and other business sectors have banded together to pressure Congress for a multiyear extension of tax provisions set to expire at the end of the year.
Reuters  Sep 20  Comment 
U.S. lawmakers expressed concern on Tuesday over a wave of mergers among companies that sell farmers their seeds, herbicides and insecticides, worrying that the deals...
Southeast Farm Press  Sep 19  Comment 
American Soybean Association High school seniors interested in pursuing a career in agriculture can apply for a $5,000 Soy Scholarship presented by the American Soybean Association. read more
Agrimoney.com  Sep 13  Comment 
With half Africa's crops lost to spoilage, better supply chains are the key to reforming the agriculture sector, Ecobank's Edward George says
Southeast Farm Press  Sep 11  Comment 
Bayer and the Belgian young farmers associations Groene Kring and Fédération des Jeunes Agriculteurs want young thought-leaders from around the world to apply to attend the third Global Youth Agriculture Summit scheduled Oct. 9-13, 2017 in...
Agrimoney.com  Sep 9  Comment 
Just six combines were sold in South Africa last month, industry data show - amid growing concerns over farm debts, and as La Nina hopes subside
Agriculture Online  Sep 7  Comment 
News › Crops Byline: Gil Gullickson If the Bayer purchase of Monsanto becomes reality, it’s another indicator that digital agriculture...




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AGCO (NYSE: AGCO) is the 3rd largest manufacturer of agricultural equipment world-wide. The company makes products such as tractors and combines, and distributes its products through a network of dealers and distributors to the farmers.[1] The company earned $6.6 billion in revenue and $136 million in net income in 2009.[2]

Since AG generates nearly all of its revenue from sales of agricultural equipment, much of its success hinges upon the health of the agriculture industry and crop prices. One current trend that may play to AG's advantage is the increased interest in corn-based ethanol. Ethanol-based energy research and development over the next several years could lead to continued growth in demand for corn and, of course, the tools needed to plant and harvest more of it. Increasing demand for food in developing countries could also positively impact AG's sales. As both populations and personal incomes grow in emerging markets, demand for both grains and grain intensive products such as meat should increase as well. With three-quarters of its revenue generated outside of the U.S., AG has greater exposure to developing countries than any of its competitors.

Company Overview

AGCO primarily makes tractors, combines, and other agricultural equipment:[3][4]

  • Tractors (66% of sales): the company sells its tractors under a variety of brand names including AGCO, Challenger and Massey Ferguson. Its sizes range from compact tractors (used on small farms), utility tractors (used on small and medium-sized farms), and high horsepower (used on larger farms and on cattle ranches).
  • Combines (5% of sales): are used to harvest various grain crops. AG's combines come with a variety of crop-harvesting heads for different kind of crops.
  • Application Equipment (4% of net sales): self-propelled 3 or 4 wheeled vehicles and equipment such as chemical sprayers which are used in the application of fertilizers and crop protection chemicals.
  • Other Products (10% of net sales): the company makes a wide range of other products such as mowers and tools used to cut hay.
  • Replacement Parts (14% of net sales): in addition to new equipment, AG sells replacement parts for their products. These parts keep farm equipment in use, including products no longer in production.

Business Growth

FY 2009 (ended December 31, 2009)[2]

  • Net sales decreased 21% to $6.6 billion. The company attributes the decline to net sales decreases in most of its geographical regions as well as unfavorable foreign currency translation impacts
  • Net income decreased 61% to $136 million.

Trends and Forces

Alternative Energy & Biofuels drive up Corn Prices

The USDA anticipates ethanol production to top 12 billion gallons annually by 2016, derived from over 4 billion bushels of corn. This would represent an increase of 168% from the estimated 1.6 billion bushels of corn used in ethanol production in 2005. This be accompanied by significantly higher corn prices, which would combine with the increased production to result in more revenue for farmers. Due to the increased demand for corn and higher prices, many farmers might use their increased income to make large investments such as purchasing new farm equipment like tractors and harvesters.

Emerging Markets Buy More Grain

AGCO is much more focused on emerging markets than peers such as Deere & Company (DE). The company generates over 75% of its revenue outside of the US, while Deere & Company (DE) generates only 30%. These countries are experiencing rapid economic development, which has fueled increased demand for food and energy. The interest in biofuels has extended beyond North America to emerging economies such as Brazil.

For example, AG's exposure to the Brazilian market (South America - mostly Brazil - accounts for around 15% of its revenues) could be a growth driver. Brazil makes ethanol from sugar cane, instead of corn. There are 47 new sugar cane mills being built in Brazil, and each one will require about 100 new tractors. AGCO has 60% market share in the Brazilian tractor market, and a dominant position in the sugarcane industry.

Competition

AG faces tough competition from a variety of competitors across the globe, but its two primary competitors are Deere & Company (DE) and CNH Global N.V. (CNH).

* Deere & Company (DE): is the world's leading manufacturer of agricultural and forestry equipment. The company currently generates 70% of its sales from the US and Canada.

* CNH Global N.V. (CNH): CNH is a leading player in the agricultural equipment market and the construction equipment industries, from the Netherlands.

References

  1. AGCO 2009 10-K "General" pg. 1
  2. 2.0 2.1 AGCO 2009 10-K "Selected Financial Data" pg. 18
  3. AGCO 2009 10-K "Products" pg. 1-2
  4. AGCO 2009 10-K "Notes to Consolidated Financial Statements" pg. 100
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