Farm Equipment Manufacturers Reap Benefits of Strong Ag Economy

May 08, 2012

To gauge the health of the farm equipment industry, all you have to do is check out that broad smile on your local tractor dealer's face. Strong crop prices for the last few years have made many U.S. farmers free spenders, and equipment manufacturers have benefited. But it's not just Americans who are buying. Worldwide, farm equipment production was valued at $98 billion last year and could top $106 billion this year, according to Agrievolution Economic Working Group, the largest international agricultural machinery association.

John Deere;s combine assembly plant in Moline, Ill., is just one of many factories trying to meet increasing world demand for farm equipment. (DTN/Progressive Farmer photo by Jim Patrico)

The group held its annual meeting in New Delhi, India, recently and reported that both emerging and industrialized regions were experiencing growth in agricultural development. That is fueling demand for more and better farm equipment.

DIFFERENT NEEDS

Developing countries want more equipment, usually small and without a lot of bells and whistles. More mature agricultures are interested in the higher technologies.

"Many newly industrialized countries are working toward increased agricultural mechanization; in developed regions such as North America and Western Europe, the trend is toward more precision farming, and demand is for the latest technologies and innovations that improve operating efficiencies," says Charlie O'Brien, agriculture sector vice president for the Association of Equipment Manufacturers (AEM), which represents North American companies.

Such global trends are not lost on American-based manufacturers like John Deere. In December, it broke ground for a tractor factory in India -- its second.

In the same month, Deere also opened its first combine factory in India. The three Deere plants will make equipment both for the Indian market and for export to other countries, including some in Africa.

"We are much more global in recent years," says Dave Everitt, a Deere global president. Asian and South American markets, for example, have been "very rewarding."

Case New Holland (CNH) and AGCO also are seizing the international moment. In December, CNH announced it was building a new factory in northeast China to assemble combines and high-horsepower tractors for agricultural and construction markets. CNH already has factories in Harbin and Shanghai to produce both large and small tractors.

A year ago, AGCO announced plans to buy an 80% equity interest in Dafeng Machinery, a Chinese manufacturer of combines. Most of the combines that come from that factory now remain in China. But AGCO has a significant presence in India and other parts of Asia and Africa that also could benefit from Chinese-made combines.

Agrievolution forecasts 2012 farm machinery sales in China will grow by 10%; likewise for Brazil. Deere projects its own 2012 ag sales to be up strongly in Asia, to be moderately higher in the CIS (Commonwealth of Independent States) countries -- countries formerly part of the Soviet Union -- and to be flat in both South America and the European Union.

European markets could be problematic. Sales of farm equipment were high in the EU in 2011, so a drop-off is to be expected, especially given the fragile economic situation there. But the banking crisis in the EU, "gives us pause," Deere's Everitt says.

Mark von Pentz, Deere's other global president, agrees. "It's not easy to predict what will happen," in Europe. Even in the best-case scenario, it might take awhile to "rebuild confidence in the euro."

Meanwhile, global manufacturers are diversifying their markets. If one goes down, others go up. Farm machinery companies have every reason to be bullish on prospects for global sales.

- Source: Jim Patrico, Progressive Farmer  

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