Escalating Material Costs Forcing Equipment Price Hikes

Continued from page 1in the survey expect sales to continueimproving in 2008 following a strongyear in 2007.“Our expectation is that U.S. farmmachinery sales will improve significantly in 2008, driven by elevatedfarm commodity prices, healthyfarmer balance sheets and expectedrecord levels of net farm income,” saysDavid Bleustein, an analyst for UBS.The main risk that could bluntgrowing equipment demand this year,according to Bleustein, is the risingcosts for fuel and energy.Growing Dealer Optimism.Despite the equipment supplysqueeze, most dealers participating inthe UBS study expect sales to continue to improve this year.“The level ofdealer optimism regarding full-yearsales increased for the third consecutive survey and now marks the highest level of dealer optimism since thesurvey conducted in April/May 2004,regarding 2004 sales,” Bleustein says.He also noted that while resultsto the current survey bode well forexpected demand, the dealer commentary reflected of caution. “Whilethe general dealer commentar yregarding farm conditions was upbeat— including continued mentions ofelevated commodity prices — dealersindicated that limited equipment availability and high inputs costs weretempering some of the optimism.”Bleustein also pointed out that inan earlier UBS survey conducted inApril/May 2007,“there was only slightMfr.Symbolmention of limited equipment availability, which is now the overwhelming concern on dealers’ minds, basedon the comments we received.”Rising Expectations. Followinga strong sales year in 2007, dealers areprojecting an even better year in 2008.Roughly 68% of ag equipment retailersare forecasting that machine sales willeither be “up more than 5%”or “up lessthan 5%” vs. only 15% that indicatedthey expect sales to be either “downmore than 5%” or “down less than 5%.”The remaining 17% of the dealers areprojecting “flat”sales throughout ‘08.On a regional basis, dealers fromthe Northern Plains, Corn Belt andLake State regions display thestrongest outlook for full-year 2008.Those in the Southeast exhibited themost weakness.Customer Outlook Positive. Atleast part of dealer optimism for therest of 2008 is derived from their customer’s positive view of near-termprospects. Only 10% of dealers saythat farmers expect agriculture todeteriorate during the remainder ofthe year.The large majority of equipment sellers — 90% — say customersbelieve conditions will improve (44%)or remain the same (46%) during thenext six months.At the same time, skyrocketingcosts for fuel, energy, feed and fertilizer are tempering strong commodityprices. One dealer commented,“Farmers faced with huge input costsin ‘08 will take away a lot of the fun of 4 corn, 11 beans and 20 milk.”Another added, “Small farmerscan’t afford increased fertilizer andfuel costs, and rising interest rates.Grain prices are good, but livestockproducers take a hit because of that.”The escalating cost of inputs “haveproducers looking at alternative farming methods,” offers another dealer.Two Sides of MachineShortage. While John Deere wascited most often in dealer comments,Case IH also received mention inregard to tight equipment supplies.But not all dealers are complainingabout the equipment shortage.“Deere cannot supply demand, sonorthern dealers will see no increasein sales,” said one dealer. Anotheradded, “[This year] would be betterbut Deere cannot deliver more.”On the other hand, some dealersseem to like the position they’re inwhen it comes to inventories. “CaseIH is sold out on combines and tractors through April. Dairy equipmentis sold way out. These are times wehave dreamed about.”But a great majority of dealers notethat sales are being stunted by the lackof new equipment inventory.“Machineshortage is limiting our new sales.”Another commented that it “would beour ‘best ever’ if we could get newmachines from the factory.”The UBS survey also looked at thereplacement cycle for high-horsepowertractors. To view their findings, go towww.farm-equipment.com.FARM MACHINERY TICKER (AS OF 4/10/2008)4/10/08 3/12/08 ketCap.AGCOAG 64.23 60.03 71.95 35.7125.191.96 M5.88 BAlamoALG 21.39 19.88 28.37 16.7717.2218,187209.54 MARTW 22.72 17.90 39.75 7.0220.1827,96845.10 MCaterpillarCAT 75.71 75.25 87.00 59.6014.106.99 M47.24 BCNHCNH 56.00 51.88 70.00 36.0023.76808,07313.28 BDE 86.91* 83.98* 94.77 53.3920.095.76 M37.90 BKubotaKUB 31.87 31.29 48.30 28.3411.6382,6498.21 BTitan Mach.**TITN 22.11 17.10 22.44 11.5023.88396,062295.48 MArt’s WayDeere*On November 14, 2007 Deere & Co. shareholders approved a two-for-one stock split in the form of a 100% dividend.** Titan Machinery undertook its IPO with approximately 6 million shares on December 6, 2007 at 8.50/share.Ag Equipment Intelligence/April/20083

Ag Growth Income Fund Grows Sales 18% in 2007Ag Growth Income Fund, manufacturers of portable and stationary grainhandling equipment, finished ‘07 withsales of 130.7 million.The Winnipeg,Manitoba-based firm reported thatnearly 35 million in sales resultedfrom acquisitions made in the last year.Excluding the impact of acquisitions,sales in 2007 were 96 million, compared to 81.5 million in 2006.The 18% sales increase over 2006is largely due to: Improved sales in the U.S., whichincreased 10.7 million or 20%over the prior year Sales in Canada increased 2.7 million or 11% over 2006 International sales increased 1.1million due to an expanding marketin Europe and improved agriculturalconditions in Australia.Analyst Concerned about Corn Ending InventoriesWhile the USDA’s ProspectivePlantings report released on March 31didn’t catch many industry observersoff guard, the agency’s monthly supply and demand update for the 200708 crop year issued on April 9 sent aclear message, according to AnnDuignan, analyst for Bear Stearns:“Corn inventories are falling precariously low!” she says.“Although this is still an old cropreport, the market was focused oncorn ending inventories for this marketing year.”Her key takeaways from theupdate included observations that ifthe projected scenario plays out during 2008, corn inventories wouldcome in at about 1.283 billion bushels.“Earlier in the week, we ran a scenario analysis with lower than expected 2007-08 corn ending inventory of1.350 billion bushels,” says Duignan.“Using our original scenario andthe new ending inventory gets us to75 million bushels of ending inventory. The market will not let this happen as it feels comfortable with 1 billion bushels of ending inventory. Weexpect corn futures to rally.”She also noted that total majorcrop gross revenues — corn, wheatand soybeans — for the 2007-08 marketing season are expected toincrease 56% year-over-year to 102billion vs. 51% in the prior estimate.This comes on the back of a 17%year-over-year vs. 17% in prior estimateincrease in major crop gross revenuesfor the 2006-07 marketing season.“Given the strong correlationbetween cash receipts and equipment sales, we reiterate our ‘outperform’ ratings on Deere ( 105) andAGCO ( 70).CNH CEO Sets Record Straight on New Holland BrandingIn a letter to New Holland dealers,Harold Boyanovsky, president andCEO of CNH and president and CEOof New Holland, responded to a newsitem that recently appeared in AgEquipment Intelligence. (See “CNH:Differentiating ‘Big Red’ from ‘LittleBlue,’ AEI, March 2008, p. 5)In the article, AEI reported thatCNH CFO Rubin McDougal discussedthe restructuring of Case IH and NewHolland brands during an interviewwith Investor’s Business Daily.In the article,McDougal was quotedas saying,“Case IH is a high-end brand interms of performance and features,while New Holland is a value brand.”In his letter to New Holland dealers, Boyanovsky says, “As part of theinterview, McDougal discussed thestrategy to differentiate the NewHolland and Case IH brands.Unfortunately, his comments weremisconstrued by the reporter.“Some comments the newsletterattributed to McDougal as directquotes, were in fact, assumptionsmade by the original reporter fromInvestor’s Business Daily.”Boyanovsky went on to explainthat CNH did not view its NewHolland products as being a “value”brand, calling it “an industry leader —a dynamic brand that provides equip-ment and support that are setting thestandards in the industry.”After citing the many awards andrecognition New Holland equipmenthas received in recent years,Boyanovsky said,“The brand differentiation strategy introduced in 2007 hasbeen working for New Holland as seenby increased market share and sales.”He added, “If anyone questionsyou about New Holland being a‘value’ brand, tell them this: the ‘value’of New Holland is in our state-of-theart engineering, our high-quality products and our top-notch dealers —which equates in anyone’s book tothe ‘best value.’”Deere Plans 80 Million Facility in RussiaDeere & Co.announced on April 1 that itis planning to invest nearly 80 millionin a central operations center in Russia.The new facility will include a distribution center for replacement parts, training facility and the possibility for local4production in the Kaluga region, southwest of Moscow.The new 98-acre facilityis scheduled to be operational in 2010.“The site will leave room for further expansion potential as our business in Russia continues to grow,” saysMark von Pentz, president of Deere’sag division for Europe, Africa andSouth America.“As an interim step forfurther investments, it also contains aprovision for local assembly and manufacturing at a later stage.”Ag Equipment Intelligence/April/2008

Farmtrac Liquidating Assets to Repay DebtFarmtrac North America LLC, theTarboro, N.C.-based manufacturer ofcompact and utility tractors, hasreportedly begun the process of liquidating nearly 4,900 units of fullyassembled farm tractors. Quoting a“knowledgeable industry source,”Starks News Service reported on April4 that liquidation will be used to helprepay debt of more than 13 millionto Textron Financial Corp.Farmtrac, which is in receivership,listed over 900 units of farm tractorswith LewPack International Inc., anexport import group that specializes inselling vehicle inventories worldwide.The source disclosed to SNSInteractive that Farmtrac plans to liquidate 2,800 units of farm tractors ininventory at U.S. dealer outlets.Another1,200 units of fully assembled farm tractors remain in storage.The company isreportedly selling the units for 8,000each, well below dealer cost.Vermeer-Lely Finalize Welger Acquisition, Aims to Double Sales VolumeVermeer Manufacturing Co. of Pella,devote to R&D with all three compa“The branding is a little differentIowa, and the Dutch-based Lely Groupnies working together.because it’s not going to be one idenhave finalized their joint acquisition“We’ve not been as strong intertified brand. Hopefully, customers willof hay baler and bale-wrapper manunationally as what we need to be. Lelysee us based on what they experiencefacturer Welger Maschinenfabrikhas a strong presence in Europe,locally, as offering enhanced technolGmbH of Germany that wasAustralia and New Zealand and weogy through our relationship with aannounced on December 17. (Seehave a strong presence in the U.S.Thiskey partner and a German-based com“Vermeer and Lely to Acquire Welger,acquisition and working with Lelypany,” Core says. “But we will not beCreating ‘Premier Brand’ of Hayinggives us the capability to be a playerone brand to all markets. We’re fairlyEquipment, AEI, January 2008, p. 5)in a larger and far more diverse marcertain of this.”While Vermeer’s agricultural operketplace.”International Flexibility. Inations manufacture a line of hay tools,While Vermeer works throughaddition to achieving wider channelsit is best known for and derives thehundreds of independent dealersof distribution, Core says partneringlargest part of its revenues from thethroughout North America, Corewith Lely should also bring a greatermanufacture and sales of round balers.points out that Lely owns many of itsdegree of manufacturing capabilityLely also makes a line of hay tools,distributors in Europe and Oceania,and flexibility to both parties.including tedders, mowers and rakes.which should provide the American“From our standpoint, workingMark Core, Vermeer’s vicewith Lely to acquire Welger doupresident of forage solutions andbles our round baler volume, itcorporate marketing, says that“There now are two partners with diversifies us in terms of whereVermeer and Lely combinedsales revenue comes from, asdifferent strengths that will allow us ourexpect to achieve a significantwell as giving us manufacturinggrowth in round balers and other to work more globally from a distri- flexibility and ability to producebution and R&D standpoint.”haying equipment they producein markets that utilize the world’sand market worldwide.two most significant currencies.”“The goal of the partnershipHe adds that having aand purchase of Welger is to create amanufacturer with instant access toEuropean partner will give both combigger organization without a comthe market in Western Europe.At thepanies some manufacturing optionsplete acquisition or merger. Theresame time, a significant portion ofin working with fluctuating exchangenow are two partners with differentWelger’s distribution is already hanrates as well.strengths that will allow us to workdled through Lely-owned distributors.“This is certainly part of the stratemore globally from a distribution and“Ultimately, we also hope thegy, but we recognize that it isn’t simplyR&D standpoint,” Core says.partnership and acquisition of Welgera matter of turning a switch and manuHe points out that the partnerallows us to leverage our R&Dfacturing products here one day andship includes Vermeer’s forage prodbetween the three companies to betsomewhere else tomorrow,” he says.ucts and not its industrial lines or theter maximize our efforts within theCore adds that plans call for conmilking lines of Lely.grassland markets. The goal of thetinuing to build round balers in PellaGlobal Distribution. The partpartnership is to bring products,and in the Welger facilities innership and acquisition will accomunder the Vermeer and Lely brand toGermany.plish several things for the two comthe marketplace that are more inno“Ideally, as we start to merge thepanies, according to Core. “It broadvative than anyone else,” Core says.technologies and manufacture prodens the breadth of our product line,No Single Branding. While maructs that fit worldwide markets, thengives us better global distributionketing strategies are still evolving, Corethe decision will be made where toopportunities than we’ve had in thedoesn’t expect the Vermeer and Lelymanufacture some of the newly develpast, as well as more resources toproducts to evolve into a single brand.oped products.”Ag Equipment Intelligence/April/20085

World Ag NewsKuhn Sales Rise 19% in 2007A 19% year-over-year increase in salesof Kuhn agricultural products — theequivalent of 902 million in 2007 —is backed up by a healthy order bookthat is nearly 30% up on the prior yearat just over 1 billion.“The solid performance wasunderpinned by favorable market andweather conditions, coupled with rising prices for agricultural products,”says Philip Mosimann, CEO of Kuhn’sparent, the Swiss-based BucherIndustries group.“This was reflectedin good sales volumes in the principal markets of Western Europe, NorthAmerica and the strongly growingcountries of Eastern Europe.”The agricultural implements business, which accounts for 38% ofBucher group sales, merged its twoNorth American operations into a single entity at the end of 2007.Kuhn North America Inc.,Brodhead, Wis., combines the operations of the former marketing and distribution arm with the manufacturingcompany Kuhn Knight, acquired in2002. Despite the move, theEuropean- and U.S.-built product linesare still branded individually and soldthrough separate dealer networks.Manitou SalesGrew 12% in 2007Buoyant demand for rough-terrain materials handling vehicles helped Manitoulift sales by 12% to the equivalent of 1.94 billion at current rates ofexchange,continuing a 3-year trend thathas delivered a 65% growth in sales.Manitou has diversified its activities to some extent, adding industrialforklifts and access platforms to itsrange. But masted and telescopicrough-terrain handlers remain its coreproduct line.While last year’s demand fromthe building and construction sectorheld steady, sales to agriculture accelerated, resulting in a 9% increase (to 1.31 billion) in revenues from roughterrain handlers.Manitou’s outlook for 2008 callsfor a further 10% growth in groupsales, despite an economic outlookdescribed as “more uncertain.”The company plans to intensify6its international presence, push aheadwith the renewal and expansion of itsproduct range and improve component sourcing. This should eliminatesupply problems that impacted production at times last year and complete a complete a reorganization program that was initiated 2 years ago.China Increasing FarmPayments to Its FarmersThe Chinese government, in anattempt to raise its production of riceand wheat and slow the pace of inflation, says that it will increase payments to growers.The Beijing government has put a hold on the prices ofrice, cooking oil and other agriculturalgoods in an effort to solidify foodcosts that surged 23% in Februarycompared to the same period in 2007.According to published reports,this move is aimed at raising “farmers’enthusiasm” for growing grain andmake progress in the development ingrain production,” said the cabinet’sNational Development and ReformCommission. It indicated that minimum grain prices paid to farmerswould rise as much as 9%.Food costs in China began risingin mid-2007 as the country began running short of grain and pork, thecountry’s staple meat.Dieci Eyes Doubling Outputof Telescopic HandlersItalian manufacturer Dieci aims to double its output of telescopic handlers andlight construction machines by 2010.The strategy,built around a new 36 million factory, will include a determinedpush into the agricultural telehandlermarket, which currently accounts for30% of the company’s sales.Dieci wants to increase outputfrom the nearly 1,700 machines builtin 2006 to 4,000 units by 2010. Ofthese,80% will be telehandlers.That stillmakes it a small player alongside competitors like JCB, which built 10,000telehandlers in 2006, and the likes ofManitou and JLG Industries. But theItalian firm intends to make its mark.In the U.S., Dieci’s larger telehandlers are branded “Xtreme” and sellalongside the machines built byXtreme Manufacturing of Las Vegas,Nev. In Canada, they are distributedin Dieci colors by DegelmanIndustries, Regina, Saskatchewan.Product plans include a gearboxplus-torque converter driveline to givecustomers a unique alternative to thecurrent hydrostatic system. A 7m/3.7tonne model similar to the current37.7 Zeus will likely be the first handler to use the Dieci-developedmechanical four-wheel drive. It willbe aimed at the agricultural marketand powered by a 4.5-liter Iveco fourcylinder diesel.Claas Ag EquipmentRevenues Improve 14%Increasingly buoyant markets inWestern Europe and continuedgrowth in demand from Russia andCentral European states helped raiseClaas sales and revenues last year.In its 2006-07 fiscal year endedSeptember 30, Claas recorded salesfor agricultural equipment of 3.56billion, up 14% over the previousyear. Sales of axles, gearboxes, cabsand other technologies rose 22.7% to 59.4 million. With the addition ofproduction engineering sales to automotive and aviation manufacturers,Claas Group sales totaled 3.83 billion, an increase of 13.1% on theprior year.Improved margins and cost-efficiencies helped lift the company’sprofitability as well. EBITDA increasedby 26.6% to 450 million, while pretax profit rose 34.5% to more than 253 million.All Claas agricultural productgroups recorded improved sales, withJaguar self-propelled forage harvestersseeing particularly strong demand inGermany thanks to the continuedexpansion of on-farm electricity generation fueled by biogas. Sales in theU.S. for harvesting corn for ethanolproduction also improved.Claas regards North America as acore market.It claims to have expandedits already strong position in the forageharvester sector with a market sharesimilar to its global position, especiallyamong large-acreage growers.It also claims to be making “steadyprogress” with sales in the NorthAmerican combine market,where it competes in the high-capacity sector.Ag Equipment Intelligence/April/2008

March Sales Slowfrom February’sTorrid PaceRetail sales of farm equipment in NorthAmerica weakened in March comparedto the pace set in February, accordingto the latest figures released by theAssn. of Equipment Manufacturers.Row-crop tractor sales were up16% compared to March 2007, following a 67% increase in February.Sales of 4WD tractors were also down( 31% year-over-year) compared toFebruary ( 53% year-over-year).“March is the first seasonallyimportant month of the year for mosttypes of equipment, accounting forabout 11% of annual sales over thepast 5 years. However, two fewer yearto-year selling days in March and a

David Bleustein,an analyst for UBS. The main risk that could blunt growing equipment demand this year, according to Bleustein, is the rising costs for fuel and energy. Growing Dealer Optimism. Despite the equipment supply squeeze,most dealers participating in the UBS study exp