Agco Corp. sees lower farm equipment sales in 2009 as global economic crisis effect

(DANIEL LOVERING, Associated Press) Agco Corp., one of the world’s largest farm equipment makers, said Thursday it expects lower sales of its tractors, combines and other machinery next year as the global financial crisis erodes demand.

Like other farm equipment companies, Agco faces the prospect of declining sales after strong growth earlier this year, which was fueled by soaring crop prices. But the price of corn, a bellwether of the agricultural economy, fell recently to less than $3 a bushel from $7 earlier this year as commodity markets plunged amid the global economic crisis.

Still, the Duluth, Ga., company’s chief executive, Martin Richenhagen, told analysts at an investor conference in New York that long-term prospects remained bright as farmers call for more sophisticated machines to boost crop yields and meet expanding food and energy needs worldwide.

“In the short term, the ongoing financial crisis may make matters worse,” Richenhagen said. “Credit is in short supply for many farmers in certain important markets in South America and Eastern Europe,” he said. He said the amount of financing available to fund input costs has declined from last year.

In North America, Agco now expects sales to be virtually flat to down 5 percent in 2009 compared with this year. It forecast sales declines of 15 to 20 percent in South America and 5 to 10 percent in Western Europe.

For next year, Agco forecast per-share earnings of $3.00 to $3.50 on sales of $7.5 billion to $8 billion. Analysts, on average, expected earnings of $3.88 on revenue of $8.35 billion.

Shares of Agco declined $1.05, or 4.3 percent, to close at $23.60 Thursday.

Last month, Deere & Co., the world’s largest maker of agricultural equipment, forecast lower 2009 earnings because of the economic crisis, and expects essentially flat equipment sales.

Agco has a large percentage of sales in Europe, Africa and the Middle East. Rival Deere, meanwhile, has traditionally focused on North America, although more than half its agricultural equipment sales came from outside the region for the first time last quarter.

Agco has an opportunity, Richenhagen said, to sell its high-tech machines in some developing countries where corn yields are low, helping farmers in nations such as Russia and China to produce more of the grain.

“The growing population, the increasing demand for food, improved diet and growing demand for energy worldwide will continue to support healthy, long-term fundamentals for the agriculture industry,” he told analysts in New York.

Grain supplies remain historically low despite record production levels, he said, and current prices don’t reflect fundamental supply and demand levels.

Economic expansion in the Asia-Pacific region and demand for renewable energy sources will also bolster global grain demand, Richenhagen added.

“Longer term, as normalcy returns to the financial markets, we believe these low inventory levels of grain coupled with continuing strong demand will keep grain prices above the historical average levels, supporting farm income and strong investment in farm equipment,” he said.

Agco saw strong sales earlier this year amid a rally in commodity prices, even as the global economy began to slow.

In October, Agco reported a 33 percent gain in third-quarter earnings, as higher prices for its tractors and other machines more than offset rising costs of materials used to make them, such as steel. Sales rose 29 percent to $2.09 billion.

Its sales were less than a third of those generated by Moline, Ill.-based Deere, which reported $7.40 billion in sales during its third quarter.

Besides Deere, Agco also competes with Netherlands-based CNH Global NV, which reported sales of $4.33 billion for the third quarter.

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Source: Forbes.com