QUOTE AND NEWS
Agrimoney.com  Jan 28  Comment 
Wheat drops 3% in Paris, and returns near $5.00 a bushel in Chicago, while soyoil plunges to its lowest in nearly six years. Corn futures fall too...
Agriculture Online  Jan 24  Comment 
A group of bipartisan business and government leaders released a report Friday that looks at the economic effects climate change is likely to bring to the Midwest, including the region’s farmers. The report concludes that in some of the...
NPR  Jan 24  Comment 
Several people associated with Modern Farmer tweeted their farewells to the magazine that became known for printing arch photos of handsome animals and writing audacious headlines.
Agrimoney.com  Jan 21  Comment 
The UK pets-to-grain trading group says that while signs are "limited" of an uptick in ag values for now, "more realistic" prices are on their way
Agrimoney.com  Jan 19  Comment 
It is hardly the busiest day for ag commodity investors, with US markets closed. Still, rapeseed manages some gains - outperforming wheat and sugar
Agrimoney.com  Jan 19  Comment 
Shanghai shares tumble, hurt by a ban on new margin accounts at three big brokerages. Still, ags are broadly stable, although soy margins are squeezed
Agrimoney.com  Jan 16  Comment 
Palm oil, one of the strongest ags of late, falls, with sugar's revival stalling too. But grains - even wheat - show early strength. Can it last?
Agrimoney.com  Jan 12  Comment 
Palm oil futures gain, as the first round of data on a heavy day for ag stats goes bulls' way. Still, there are many more reports to come...
Benzinga  Jan 8  Comment 
In a report published Thursday, Credit Suisse analyst Jamie Cook reiterated an Outperform rating on Deere & Company (NYSE: DE), and raised the price target from $95.00 to $100.00. In the report, Credit Suisse noted, “On the Q4'14 EPS call,...
Agrimoney.com  Jan 8  Comment 
Tumbling oil prices spelled "bearish trends" for agricultural commodity values, the UN FAO says, as it says that food prices have hit a four-year low




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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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