Vol. 12, Issue 10

News, Information & Analysis for the Ag Equipment Marketer February 15, 2006 FBI Looking into Bankrupt Iowa Dealer As Farm Customers Consider Options to Reclaim $22 Million As a group of farmers from several states The Iowa Attorney General’s assertions going around,”said attorney plan their next move in an attempt to office is also involved in the case, but Matt Cronin, who is representing the recover $22 million they paid says that it is unclear what recourse group.“If there’s a basis for a lawsuit Walterman Implement in Dike, Iowa, farmers may have under either state — and it appears right now that there before it was closed down in October, or federal law. is — that will likely lead to litigation.” the FBI is now looking into the matter. Stanley Webb, a Mitchellville, An undisclosed number of farm- The Case-IH dealership was Iowa, farmer, has filed suit against Case ers had been making payments to the forced into Chapter 7 bankruptcy by Credit Corp., CNH Capital America dealership ranging between $12,000 creditors who claim Walterman dou- and Walker-Schork International, Inc. and $22,000 in a “roll” program that ble-financed several pieces of equip- Webb claims that Case delivered a would have provided them with new ment. It is estimated that hundreds of new combine registered in his name and previously owned combines. farmers from Iowa and surrounding to the Rochelle, Ill., dealer, who sold it Many of Walterman’s customers states lost thousands of dollars each to a local farmer. have outstanding notes with the after the dealership was closed. According to the Des Moines financing company of CNH America. Tom Witom, a spokesman for Register, about 130 farmers who claim Some fear they may be obligated to CNH America, the Racine, Wis.-based to have lost thousands of dollars to pay off the loans, even if they do not maker of Case IH equipment, indicates Walterman, recently met in Maxwell, own the equipment. that the company is cooperating with Iowa, to discuss their options. “We are sensitive to the issues of “an FBI investigation into the business “The first step is going to be to having to make payment,and will work practices of Walterman.” look into the facts.There are a lot of to support our Case-IH customers. But, Continued on page 2

Dealers Expect 2006 New Equipment Pricing to Rise 3% According to preliminary results from UBS Investment ries have increased slightly since the last survey and are at Research’s 19th Semiannual Agricultural Dealer Survey,deal- normal levels.They also report that used equipment inven- ers say that new and used equipment prices continue to tories have also increased since the spring but remain firm, but at a slower pace of growth.Additionally, dealers below normal. Survey results also indicate that delivery expect smaller price increases by manufacturers on new lead times have improved. equipment in 2006. The results shown in the accompanying tables are Dealers also indicated that new equipment invento- based on 560 responses to the UBS survey as of February 2. The surveys were mailed to AGCO, Case-IH, Deere and New Holland agricultural equipment dealers. TABLE 1. DEALER VIEWS New Equipment Pricing ON NEW EQUIPMENT PRICES Dealers indicate that new equipment prices continue Company Weakening Stable Firming to firm, but at a slower pace.As shown in Table 1, 38% of the survey respondents indicate that the price of new ag AGCO 12% 42% 46% equipment is “Firming,”while 12% say that it is “Weakening.” Case-IH 14% 43% 42% UBS analyst David Bleustein says that this indicates that Deere & Co. 10% 53% 37% dealers believe price increases will continue. New Holland 11% 58% 31% In total, dealers feel pricing increases will soften some- Total 12% 50% 38% what from those seen during the 3 previous semi-annual Continued on page 3

The contents of this report represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Lessiter Publications Inc., may be clients of this and other Lessiter Publications Inc. services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. FBI Looking...Continued from page 1 they did sign a binding contract that deposited with CNH Capital or any to blame or let things get out of con- must be honored,”said Frank Anglin III, other financial institution. trol,Anglin insisted that it’s not uncom- Case IH North America Ag vice presi- Anglin said that from a broad per- mon for a dealer to place orders well dent in an interview with Ag Industry spective, “customers should’ve real- beyond his assigned number.“Dealers Watch. “We’re not at fault,and to come ized that the situation could not work are selling outside of their area after CNH when it was not knowledge- economically for the dealer.” Despite because other dealers have not been able about any wrongdoing does not the immediate losses, it is possible aggressive.”While the scope of the sit- reflect a broad perspective.” that farmers participating in the pro- uation was unique, Anglin says that Case IH and CNH Capital, which gram for some time may have come 30% of dealers sell beyond their imme- forced Walterman into bankruptcy in out ahead. diate geographic area. late October, claims misappropriation When AIW asked what controls Titan Machinery, based in Fargo, of funds and unpaid debt totaling $22 Case would be using to keep such a N.D., one of Case IH’s largest Midwest million. Walterman has denied any situation from repeating itself, Troy dealerships,is acting as the agent for Case wrongdoing. Price,VP North American Agricultural IH and will continue operating the deal- According to filings in the case, Financial Services, mentioned it was ership during bankruptcy proceedings. employees of Walterman Implement an isolated incident.“We have full con- In a February 10 telephone inte- sought contracts for the 2006 harvest fidence in our normal audit process view with AIW, David Meyer,Titan’s season and collected deposits. The for identifying and preventing situa- president & CEO,commented that little money was supposed to have been tions like this from occurring again.”A has changed with the situation. While held in escrow by CNH Capital. But Birkey’s Farm Store representative Titan would eventually like to purchase those deposits, which range from also defended Case IH’s audit process. the dealership, no decisions will be $15,000 to $22,000, were never As for inferences that Case IH was made while the case is pending.

OTHER DEALERS SAY THEY ‘SAW IT COMING’

As the Walterman Implement ordeal grinds itself through the One dealer pointed out that Iowa does not have laws prohibiting legal system, some dealers say they “saw it coming.” Ag tampering with the hour meters on farm equipment. Industry Watch spoke with several dealers that have observed It is estimated that Walterman Implement controlled 20% the situation even before the dealer was forced into bankruptcy market share in the state of Iowa. It is also known that the last fall. The dealers spoke to us but asked not to be identified. dealership sold equipment in dozens of states beyond the When Ag Industry Watch editors visited with dealers in Iowa Midwest. This gave it significant leverage within Case-IH in last summer, months before Walterman Implement was forced terms of volume discounts. into bankruptcy, it was suggested that some things weren’t “Dike was selling on price,” says one source. “Price shoppers right with the dealership in Dike. are not loyal shoppers. I suspect CNH was cutting the dealer- “I told you they were going to go belly up,” one dealer says ship some lower priced deals on combines because of vol- now. “Walterman had a plan that worked for awhile, but they ume. Also, sometimes a dealership gets in so deep, the finance couldn’t keep it going forever. Before they started handling company knows he can’t pay off his debt so they hope ‘time’ will Case, they handled . In the early ‘90s, they right the situation and continue to extend credit and terms. As went to Case and said ‘We’d like to be your dealer and we’ll he gets in deeper, at some point there has to be a decision to order 50 combines.’ pull the plug. “If you think about it,” says the equipment dealer, “they went “With the huge inventory they had at Dike, it’s hard for the from last place in the Case-IH organization to one of the finance companies to keep track of all the equipment, and biggest in North America in 15 years without making an acqui- maybe machines get financed twice. There may be no clear title sition. That’s pretty amazing. They did it from the inside out, on the equipment. I don’t know exactly what took place, but while maintaining one store.” when one dealer is moving as many combines as they were, Dealers that Ag Industry Watch spoke to about the combine- you have to suspect some things were not right.” roll program report that such selling schemes are at best a The entire Walterman affair is already impacting ag dealer- house of cards. ships, particularly the larger dealer organizations. With the “roll” concept, when a new combine is sold, the “It’s definitely changing the game,” says another dealer. goal is to have 6 different owners for that piece of equipment. It “You’re going to see the bean counters come into the stores that would take 6 years to get through the entire process. are highly leveraged and they’re going to be watching them One of the problems with the setup, say dealers, is that closely for cash flow and whatever. They know they should have Walterman didn’t get enough money for the equipment up front. caught the Walterman situation sometime ago. It’s going to put There is also some question about how many hours the equip- strain on the multi-store again. These guys are not going to be ment accumulated as it proceeded through the roll program. allowed to run a sloppy business anymore.”

AG INDUSTRY WATCH is published monthly for the farm equip- U.S., Canada and Mexico print subscriptions are $349 per ment industry by Lessiter Publications Inc., P.O. Box 624, year. Save $50 by receiving Ag Industry Watch each month via Brookfield, WI 53008-0624. © 2006 by Lessiter Publications Inc. E-mail Internet access at only $299 per year. International print All rights reserved. Reproduction in any form of this newsletter subscriptions are $449 per year. Send subscriptions to: Ag content is strictly forbidden without the prior written consent of the Industry Watch, P.O. Box 624, Brookfield, WI 53008-0624. Fax: publisher. Please send any address changes as soon as possible 262/782-1252. Phone: 262/782-4480 or 800/645-8455 (U.S. only). to the address shown above. E-mail: [email protected].

2 Ag Industry Watch/February/2006 Dealers expect Rise...Continued from page 1

TABLE 2. DEALER VIEWS ON NEW TABLE 3. DEALER VIEWS EQUIPMENT PRICE INCREASES IN 2006 ON USED EQUIPMENT PRICES IN 2006 Company 0%-1% 1%-2% 2%-3% 3%-4% 4%+ Company Weakening Stable Firming

AGCO 2% 2% 44% 31% 21% AGCO 24% 5 7% 18% Case IH 1% 6% 39% 34% 21% Case IH 11% 7 5% 14% Deere & Co. 1% 5% 22% 48% 24% Deere & Co. 8% 71% 22% New Holland 1% 10% 47% 27% 15% New Holland 21% 5 7% 22% Total 1% 6% 38% 35% 20% Total 16% 6 5% 19% surveys. Still, prices are expected to rise as 35% see increases while others say that low interest rates on new equip- ranging between 3-4% and 38% say they believe pricing will ment is slowing demand and lowering the price for used rise between 2-3%.Table 2 provides a breakdown on expect- whole goods. ed equipment price increases by manufacturer. Comments from those dealers who see higher new Dealer comments demonstrate a continuing level of equipment pricing pushing up used equipment prices frustration with the higher equipment prices:“prices con- included: “price increases on new machinery is helping tinue to escalate — too much for the market,”“have been late model used sales,”“they are being supported by higher through the worst price increase period,” “changing prices, prices on new,”“higher new has driven up used somewhat.” constantly or adding some kind of surcharge,”“I don’t know Those who see low-interest rates and “cheap financing how much more farmers will be able to pay,”“I guess they programs” on new equipment affecting used equipment see no reason to drop prices,”“this comes after 5-20% pricing offered these comments: “demand has slackened — increases in last 18 months.” sales of used are off 16% from 2004,”“manufacturers are Many dealers recognize that higher prices are the weakening used sales with 0% financing,”“some low-rate result of rising input costs. Their comments include: programs are hurting the used market.” “freight is a big item in the west,” “even though steel has Despite all of this, most dealers feel that good quality leveled in last 6 months, manufacturers are catching up,” used equipment remains in demand: “dealers are buyers “price increases in new tech equipment — wagons, tillage, for desirable used equipment,”“good clean equipment still etc. have not been rolled back with steel price decreases,” has a market,”“good used hard to find (no trade ins),”“good, “steel and energy costs are driving up equipment prices,” clean low-hour equipment will sell quickly,”“high-value “continued inflation driven by steel prices with short lines.” machines are scarce,”“good late models strong — older equipment weak,”“nice equipment is real strong, rough Used Equipment Pricing equipment impossible to sell.” Dealer responses to the survey indicate that used Still, some dealers say the used equipment market is in equipment prices are firming slightly.Overall, 19% say that for rough times:“slow this year versus last,”“market for used previously owned ag equipment is “Firming” and 65% feel equipment is shrinking,”“no demand for used equipment — that it is “Stable.” prices off 30%,”“used machinery is a bad commodity — no Higher prices for new equipment is impacting used small farmers to purchase these lines of used,”“used inven- equipment in a variety of ways. Some dealers indicate that tory is junk left over” and “there is no demand for used it is driving up the price of previously owned machinery, equipment — too many new .”

FARM MACHINERY TICKER (AS OF 2/10/2006) 2/10/06 1/12/06 1-Year 1-Year P/E Avg. Market Mfr. Symbol Price Price High Low Ratio Volume Cap.

AGCO AG $17.52 $16.78 $21.46 $14.60 12.00 1.17M 1.17 B Alamo ALG $22.80 $21.78 $ 6.10 $18.04 17.01 10,200 222.23 M Art’s Way ARTW $ 6.31 $ 6.10 $11.50 $ 4.50 9.28 4,700 12.39 M Caterpillar CAT $68.75 $62.21 $69.75 $41.31 17.02 3.68 M 46.76 B CNH CNH $20.08 $18.15 $22.38 $15.79 28.69 164,500 2.69 B Deere DE $73.62 $69.28 $75.93 $56.99 12.54 1.52 M 17.31 B Gehl GEHL $29.37 $28.07 $34.53 $14.83 16.78 75,700 352.50 M Kubota KUB $45.24 $44.55 $48.00 $24.20 11.14 33,500 11.92 B

Ag Industry Watch/February/2006 3 World Ag News

Claas has increased its ownership of Renault JCB Landpower and saw sales up by 13% and Agriculture in line with the agreed-upon schedule when 15%, respectively, which is more than creditable given the German manufacturer paid almost $99 million for a that both (especially JCB) focus on upper horsepower controlling 51% share of the French firm and farm sectors rather than the main volume sectors of the U.K. machinery retailing operation.The additional 29% of shares market. In contrast, Renault dropped more than 8% and purchased from the Renault automotive group takes the by almost 19%, probably as a result of distribution Claas holding to 80%. uncertainties following their acquisition by Claas and The Claas-Renault Agriculture assembly plant at Le AGCO, respectively. Mans, France, is reported to have increased production by 25% from the 9,000 units it produced at the time of the Amazonen-Werke H Dreyer (Amazone), Europe’s acquisition, largely as a result of a 22% increase in export third-largest agricultural equipment maker after sales.The firm has hired an additional 300 employees to fill Kverneland and Kuhn, reported a 6% increase in sales for positions in manufacturing and R&D over the past 2 years. its fiscal year ending September 2005. Moreover, Claas claims a three-fold improvement in prod- Joint managing directors of the family-owned firm, uct quality and reliability. Christian Dreyer and Dr. Justus Dreyer, say exports from the German company’s factories accounted for 70% of the In contrast to most European tractor markets in $253 million turnover. Sales growth in Eastern Europe, 2005, sales in Germany ended ahead of the year at 23,506 where Russia has become the company’s second most units, up 6.2% compared with 2004 sales.According to fig- important export market after France, was particularly sig- ures from VDMA, the German machinery manufacturers’ nificant, growing approximately 10%. association, matched the market trend to main- Last fall, Amazone established its own sales and sup- tain a 21.2% market share and remain the German market port operation near Moscow to reflect the status of the leader. Fendt’s second-place share slipped slightly as it failed Russian market where large cultivators and seed drills are to keep pace with the market and the SDF group’s Deutz- the company’s principal products. Fahr completed the top three with a 9.7% growth in sales. In response to growing demand for such implements, Zetor made the biggest gain, leaping 54% to 117 units Amazone has added 2 new production areas to its BBG- as supplies improved and customer confidence was Amazone manufacturing operation near Leipzig in eastern regained after the Czech manufacturer’s comprehensive Germany as part of a $12 million investment program. business and production overhaul. Claas tractor sales grew Crop sprayer component production has also been 41% as German farmers took to the re-branded Renaults. increased at the plant, in part due to a partnership estab- Belarus also experienced significant improvement lished last year with Amazone’s fertilizer spreader and spray- while the ARGO Group’s McCormick and Landini brands ing equipment importer in Brazil. Stara is now assembling also made progress, with sales up 17% and 15%, respec- Amazone sprayers using locally fabricated chassis frames. tively,ahead of the market trend. The biggest loser was Case IH, which saw sales fall An auction of assets of the Dunor Potato Group is by 16.8% or 400 units. CNH stablemate New Holland fol- scheduled for this month in the Netherlands following the lowed suit with a less dramatic 4.6% sales slide. collapse of the Dutch-Norwegian joint venture. Dunor was established in March 2002 to combine the potato machinery France-based Kuhn saw a 9.2% sales increase to interests of Kverneland, which owned a third of the com- the equivalent of $603 million in 2005, thanks in part to a pany,and of Agrimac Holdings, which owned two-thirds. contribution from the Metasa seed drill company in Brazil The business had a complete range of equipment for that Kuhn acquired during the year. Excluding Metasa’s seedbed preparation, harvesting and conveying potatoes figures, sales grew by 7.7%, which compares with 8.4% using the familiar European names Underhaug,Amac sales growth achieved in 2004. and Climax. The European potato equipment market, which is Tractor marketing personnel have been poring dominated by the German company Grimme, with sales in over 2004 vehicle registration figures released by the 2004 worth $126 million, is littered with casualties, includ- U.K.’s Agricultural Engineering Association (AEA), a year ing Netagco, the Dutch group that brought together a in arrears in line with a European Commission ruling.They number of independent companies, and Scottish manu- show that while CNH Global maintained its leading market facturer Reekie. share overall, sales of New Holland and Case IH both slipped — the former by 4.3%, the latter by 9.5% — Year-end ag equipment sales in South Africa last in a market that grew a modest 3.15% over the prior year. year were down 11% from 2004, according to the South The ARGO Group’s McCormick unit was the biggest African Assn. While sales were gainer with a 17% sales gain taking it past Case IH into the expected to be lower due to corn growers’ intentions to number four slot for the first time, albeit with barely half plant significantly less this season because of the fall in the sales of third-ranked Massey Ferguson, which grew in prices last year, machinery levels remained better than line with the market. expected.

4 Ag Industry Watch/February/2006 Despite 3.3% Sales Increase, AGCO’s 2005 Profits Slip

AGCO Corp. earned a substantially an operating loss partially due to ing income shortfall in 2005, accord- lower $31.6 million during the 2005 strength in the Brazilian real vs. the ing to the CEO. calendar year,despite a 3.3% increase in U.S. dollar,”says Andrew Obin, Merrill “Our retail sales performance in sales to $5.44 billion.The firm earned a Lynch analyst. 2005 was a positive sign that our wider $158.8 million during 2004 on “Although revenues in South products and core brands are gaining lower revenue of $5.27 billion. America were better than expected,the acceptance worldwide. For 2006, our The Decatur, Ga., ag equipment market continued to remain weak with goals are to improve margins and maker incurred a loss of $63.8 million retail sales declining by 24% and 58% asset returns through the achieve- during the fourth quarter on a 9.7% for tractors and combines,respectively.” ment of our cost reduction and inven- decline in sales to $1.38 billion. “Our focus in the fourth quarter tory management initiatives.” During the 2004 final quarterly peri- was on generating cash and reducing AGCO says that North American od, AGCO earned $50.7 million on inventory levels,” says Martin industry unit retail sales of tractors for sales of $1.53 billion. Richenhagen,AGCO president & CEO. 2005 remained relatively flat compared The firm attributed the lower “Production levels in the fourth with a year-ago, due to a decline in the fourth quarter sales in 2005 to the quarter of 2005 were approximately compact tractor segment that was off- impact of weaker market conditions 30% lower than the prior year which set by increases in the utility and high in Western Europe and South America. allowed us to significantly reduce horsepower tractor segments. Its North American income from inventories from third quarter levels. Industry unit retail sales of com- operations in the fourth quarter fell Margin pressures from lower produc- bines for the full year of 2005 were $9.9 million due to higher costs from tion and other factors along with soft- approximately 1% higher than the the impact of the weak dollar on prod- er market conditions in Western prior year. ucts produced primarily in Brazil,high- Europe and South America negatively er warranty costs, and increased mar- impacted our fourth quarter operat- keting and engineering expenses relat- ing results,”he says. ed to new initiatives. The significant decline in industry Terradox Takes “In North America, while rev- demand in South America was the enues remained flat, AGCO reported principal cause of the firm’s operat- On Deere Over GPS System SLOWER SALES IN ‘06 Terradox Corp., Calgary,Alberta, is AGCO’s sales for 2006 are expected to be slightly below 2005 due to lower indus- challenging Deere & Co. over its try demand, planned dealer inventory reductions and currency translation, partially alleged infringement of Terradox’s offset by improved pricing. copyright on its SiteWinder GPS Despite the expected decline in sales, AGCO is targeting an improvement in its guidance system. results in 2006 through increased operating margins and lower interest costs. In According to Terradox, addition to its goal to improve earnings, AGCO is also targeting improvements in working capital utilization in 2006. Deere’s recently introduced AGCO expects to lower its seasonal increases in dealer inventories throughout Greenstar-2 GPS system features 2006 by leveling production and dealer deliveries compared to 2005. These actions on-screen presentations that are vir- are expected to lower sales and profits in the first half of 2006 compared to 2005. tually identical to Terradox’s “Through growth and productivity initiatives, we have set a target to improve SiteWinder system, John Deere has annual earnings by up to 10% in 2006 and by 10-15% annually thereafter,” the caused considerable confusion firm says. among existing and potential SiteWinder users. Gary Vanderploeg, president of Terradox, says “We are finding that CNH Ag Equipment Sales Slip 2% customers in the market for GPS guidance systems are being pro- Sales of Case IH and New Holland ag more moderate pace. foundly confused by the similari- equipment drifted 2% lower in the CNH expects that for the full year, ties between the Greenstar-2 and fourth quarter of ’05 compared to the worldwide industry unit retail sales of our SiteWinder. This confusion in same period a year earlier.Total sales agricultural tractors will be slightly the market place is too much to were $1.8 billion for the quarter. lower than in 2005 in every major ignore, and we have issued a legal North American sales of CNH farm market, but should remain at among challenge to John Deere to resolve machinery were up 4% in the quarter. the highest levels of retail unit sales this issue.” During the period, CNH’s produc- in the past 5 years. Industry unit retail “The color scheme and screen tion of tractors and combines was sales of under-40 hp tractors in North layout of the SiteWinder is no acci- approximately 1% lower than retail unit America are expected to be down 5- dent. It appears that John Deere has sales in the quarter. Compared with 10% from the high levels of 2005. Sales lifted these attributes from us for 2004’s fourth quarter,CNH reports that of over-40 hp tractors in North inclusion in its GreenStar-2 system, material costs,including steel and plas- America are expected to remain at without Terradox’s permission”. tics, continued to increase, though at a about the same level as in 2005.

Ag Industry Watch/February/2006 5 McCormick, Landini Combine to Form ARGO Tractors

ARGO S.p.a. of San Martino in Rio, antitrust intervention ordered CNH to utes product through a network of Italy,announced on January 31 that it sell certain factories. ARGO acquired more than 300 dealers. reorganized its ag equipment opera- the plants of: ARGO Tractors S.p.a. will be con- tions, creating ARGO Tractors to man- ✔ Doncaster in the U.K. where trolled by ARGO S.p.a. and is respon- ufacture and market McCormick and Case-IH Magnum tractors are sible for manufacturing its farm trac- Landini brand products throughout assembled. tor brands, as well as marketing the world. ✔ St. Diziers in France, which manu- through the Landini–McCormick deal- This new division of ARGO S.p.a., factured the transmissions and er networks. the holding company of the group, powertrains for the tractors S.p.a. will oversee the will control the manufacturing of trac- assembled in Doncaster. equipment opera- tors and components in France, Italy, ✔ Breganze (VI) in Italy where com- tions of FellaWerke Gmbh and and the U.K., as well as marketing bine harvesters are made. Gallignani S.p.a. and will constitute them through a worldwide Landini- These acquisitions, which were the Agricultural Machinery division. McCormick dealer network. formally concluded in early 2001, The Argo Industrial Group has ARGO S.p.a. was established and more than doubled the manufactur- global sales in excess of $950 million acquired Landini S.p.a. in 1994. ing capabilities of the company.ARGO and more than 3,200 employees.The Valpadana S.p.a. compact tractors and also acquired the McCormick tractor Argo brands of farm machinery SEP S.r.l. industrial mowers were brand in 2001.The company was sub- include: Fella, Gallignani, Landini, acquired during the second half of the sequently established under the busi- Laverda, McCormick, Pegoraro, Sep, 1990s. In 2000, following the merger ness name of McCormick Tractors and Valpadana. of Case and New Holland (CNH), International, Ltd., and now distrib-

Farm Equipment Industry Notes & Newsmakers

Montana Tractors, Springdale, Ark., began assembling be available at The Home Depot starting at $1,699. Kohler three new utility tractor models rated between 23-70 hp in Engines will power the vehicles. January.The company says that it plans to assemble about The Home Depot will be the only home improvement 2,600 units during 2006. The new models include the retailer to offer Cub Cadet lawn tractors in stores nation- T7074,T2334 and 60 Series. wide. Montana says parts for the 70-model and 23-model are Mahindra & Mahindra, Ltd., the Indian manufactur- sourced from a TYM plant in South Korea, while parts for er of farm tractors and utility-type vehicles, reports that its the 60 Series-model are sourced from UTB of Romania. profit during the third quarter of fiscal 2005-06 ended Dec. The company said it would build 700 units of the 31, surged by 75% on a 25% rise in revenue as demand for T7074, or Montana 70 Series, which will be powered by its vehicles continued to expand. M&M says it earned $530 70-hp John Deere diesel engines. These are Montana’s million in the period from a 25% higher turnover of $503 largest farm tractors, weighing 6,600 lb. million. A year ago, it earned $303 million. It also plans to produce 1,000 units of the 30 Series During the fiscal 9-month period, the firm said it gen- sub-compact farm tractors.The farm tractors will be pow- erated sharply wider profits of $122 million on higher rev- ered by Mitsubishi diesel engines, with HST transmissions enue of $1.4 billion.This compares to a year-ago gain of that deliver 23-27 hp.The firm said it would assemble 900 $820 million from narrower turnover of $1.1 billion. M&M units of 60 Series model farm utility-type tractors that will reports that it sold 63,196 units of farm tractors and other generate horsepower in the range of 47, 52 and 68. vehicles during the third quarter of fiscal 2005-06, a 14% Farmtrac North America,Tarboro, N.C., will begin expansion from last year. Farm tractor sales rose to 24,018 sub-assembling its largest farm tractor in the U.S. and plans units in the most recent quarter,a 26% increase. to build 150 of the vehicles during 2006. Kubota Corp., headquartered in Osaka, Japan, report- The firm said the 7115-model, an addition to the 7 ed that its earnings during the 9 months of fiscal 2005-06, Series line-up of farm tractors, would be powered by four- ended Dec. 31, fell 4.8% despite a 11.6% rise in sales due to cylinder SAME Deutz-Fahr diesel engines that generate 114 higher income taxes. Meanwhile, the firm’s outstanding hp and 100 PTO hp. These tractors will weigh 8,500 lb. long-term debt skyrocketed in the period by 37.5%. and have a lift capacity of 13,670 lb. Kubota says it earned a narrower $553.1 million dur- Cub Cadet, Cleveland, Ohio, will sell several products ing the period from higher revenue of $6.27 billion.A year from its line of premium lawn tractors through The Home ago, it netted $5.28 billion. Depot stores nationwide. Sales of its farm tractors during the 9 months “main- The Cub Cadet lawn tractors, including models from tained steady growth”in the North American market. Diesel the Series 1000, RZT and Home Maintenance lines, will engine sales in North America “also grew sharply.”

6 Ag Industry Watch/February/2006 JANUARY U.S. UNIT RETAIL SALES U.S. Figures Down, December January January Percent YTD YTD Percent Equipment 2005 Field Canada Up, Though 2006 2005 Change 2006 2005 Change Inventory USDA Report Brings Farm Wheel New Concerns Tractors-2WD

North American large tractor retail Under 40 HP 5,238 5,325 -1.6 5,238 5,325 -1.6 56,958 sales fell 17% year-to-year in January, 40-100 HP 4,613 4,528 +1.9 4,613 4,528 +1.9 30,102 the steepest decline seen since November 2002, reports Robert 100 HP Plus 1,698 2,103 -19.3 1,698 2,103 -19.3 6,529 McCarthy,analyst for Baird U.S. Equity Research.“However, inventory levels Total-2WD 11,549 11,956 -3.4 11,549 11,956 -3.4 93,589 suggest that farm equipment manu- facturers managed dealer inventory Total-4WD 222 266 -16.5 222 266 -16.5 870 levels appropriately via industrywide Total Tractors 11,771 12,222 -3.7 11,77112,222 -3.7 94,459 production cuts,”he says. North American retail sales of SP Combines 336 355 -5.4 336 355 -5.4 1,209 row-crop tractors fell 18% vs. last January. McCarthy cautions that the month is of minor importance on a seasonal basis, contributing just 7% of JANUARY CANADIAN UNIT RETAIL SALES annual sales over the past 5 years. December January January Percent YTD YTD Percent Overall, he says January’s modest Equipment 2005 Field 2006 2005 Change 2006 2005 Change sales were consistent with the major Inventory ag equipment manufacturers’ expec- Farm Wheel tations as new, higher-priced Tier III- Tractors-2WD compliant machines were introduced to customers.“We expect sales in the Under 40 HP 277 241 +14.9 277 241 +14.9 3,593 more seasonally important months of March and April to better reveal the 40-100 HP 391 302 +29.5 391 302 +29.5 2,574 trajectory of equipment sales for the 100 HP Plus 158 147 +7.5 158 147 +7.5 1,424 year,”says McCarthy. On a positive side, Canada’s fig- Total-2WD 826 690 +19.7 826 690 +19.7 7,591 ures were substantially better in all categories with the exception of com- Total-4WD 29 26 +11.5 29 26 +11.5 185 bines vs. a year ago. Meanwhile, North American retail sales of 40-100 hp Total Tractors 855 716 +19.4 855 716 +19.4 7,776 tractors increased 4% in January vs. a SP Combines 35 62 -43.5 35 62 -43.5 412 year ago. USDA Net Income Forecast 2006 A look at the USDA’s initial 2006 U.S. UNIT RETAIL SALES OF 5 year net cash income forecast in early 2-4 WHEEL DRIVE TRACTORS & COMBINES average February reinforces concerns that 30,000 2006 farm income may decline mate- 28,000 rially from the record levels reached during the past 2 years, says 26,000 McCarthy. 24,000 The USDA projects 2006 net cash 22,000 income to fall $18 billion to $64.8 bil- lion (down 23%).The significant fore- 20,000 cast decline in net cash income is due 18,000 to a 1.5% expected drop in the value 16,000 of U.S. agricultural production, com- pounded by a 3.7% rise in production 14,000 expenses (namely interest payments 12,000 and higher energy costs). Total farm 10,000 receipts are expected to fall 2.7% to 8,000 $249.7 billion, which McCarthy says is consistent with Deere’s $246 bil- 6,000 lion forecast. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC —Assn.of Equipment Manufacturers Ag Industry Watch/February/2006 7 Case IH Dealers Hear Clear Message on Competitive Lines

During an interview in his Racine,Wis., to the meeting and could not report a balance between an emphasis on office in October,Frank Anglin III,Case the language directly,but the buzz was market share and margin. From Ag IH Vice President-North American strong enough that Anglin felt com- Industry Watch’s perspective, this isn’t Agricultural Business, described his pelled to address the matter during his likely to occur as long as volume bonus- approach to dealers carrying competi- luncheon speech at the Midwest es are based on market share figures. tive lines to Ag Industry Watch. Equipment Dealers Assn. meeting in Other conversations with those “Rather than setting forth an Lake Geneva,Wis, on January 19. present turned up other concerns that edict, I like to think we’re earning the Stating that he wanted to clarify dealers had following the meeting: business back,” he said, citing the to dealers that the point was about • that certain segments could be “left tractor addition, improve- earning more of their business, he in the cold.”Case IH has made it clear ments in MXM quality and other gains added that “We understand that, on it wants to “dominate the cash crop in parts availability, supply chain planters for instance, we might offer segment,”raising concerns over how issues and responsiveness to dealers. only 60% of the total configurations well other segments, such as the 40- He also added that “Once we’re hp and under tractor, would be served where we need to be, and we are and supported. improving rapidly,we can take a more “Several dealers reported • a slide showing the future Case IH forceful stance with dealers.” dealer-principal would own 7-10 Apparently, that day has arrived. to Ag Industry Watch that stores left single-store operations feel- Several Case IH dealers reported to the message they received ing unimportant and/or vulnerable. Ag Industry Watch that the message they during their mid-January • a statement was made about re- received during their mid-January dealer meeting was to rid entering with company-owned loca- Case IH dealer business meeting in the non-Case IH product tions, although subsequent clarification Chicago was to rid the non-Case IH by Anglin insisted that the context of product lines from their stores. From lines from their stores...” the comment was only in a situation those present that Ag Industry Watch where an open point existed and a cur- spoke with, it seems that new Case rent dealer was unable to fill it. IH Ag Business Worldwide President that a dealer may need to be success- • When Ferla was asked during the Mario Ferla provoked strong feelings ful. No, we’re not telling you that you Case IH “Big Red Roundup” dealer from dealers with words expressing can’t carry Kinze anymore. We have meeting in Phoenix in early February that he expects dealers’ business today, not lost that perspective.”Less than a about his expectations of dealers, he and one mentioned that the words week later, he made a full-dealer con- avoided commenting on what he said “non-negotiable”were uttered.A short ference call to lend further clarifica- was “a touchy subject.” He said that list of independent manufacturers was tion to matter. dealers would need to figure out the cited during the meeting, including In other comments about the complex business landscape for them- McCormick and Kinze. importance of dealer profitability, he selves and how best to achieve syner- Ag Industry Watch was not invited noted that dealers must begin to strike gies in the market.

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