Argo Closing Doncaster Mccormick Tractor Plant By

January 15, 2007 Vol. 13, Issue 9

•NEWS FROM EUROPE: - Krone Sets Sales Record - Claas Sales Up By 8.1% - New IVT Transmission

Argo Closing Doncaster McCormick Tractor Plant by Mid-2007 McCormick Tractors International, The agreement raised $28 million to up capital, that should tell you what Ltd., a unit of Argo, S.p.A, the Italian help the firm reduce the amount of condition their checkbook is in,”says manufacturer of McCormick and the loan Argo procured when it pur- one industry insider who asked not Landini tractors, announced on chased McCormick in 2001. It also to be identified. January 4 that it will shut down its said that the sale would help to avoid One McCormick dealer expressed operations in Doncaster, England, in further job reductions. frustration with the manufacturer say- 2007. Production of McCormick The shutdown will result in a loss ing it took 2.5 months to get parts to equipment will be shifted to other yet- of nearly 320 of the 350 jobs at the repair a brand new 200-hp tractor he to-be-named facilities in Italy.Tractors site, which will continue to serve as a sold last year. have been manufactured at the McCormick sales and parts distribu- In an interview with AEI on English facility since the 1930s. tion office. Argo is negotiating with January 8, McCormick USA president In June 2006, Argo announced unions on how it will close down trac- Simeone Morra says that the restruc- that it had sold the land on which the tor assembly operations by mid-year. tured operations will have no impact Doncaster plant was located, but that McCormick produces its XMC, MC on U.S. dealers and customers, and is it would retain the production facili- Power 6, MTX, XTX and ZTX tractor aimed at keeping its products com- ties on a long-term, leaseback arrange- models here. petitive ment. At the time, Argo said that the Industry observers say that Argo is “Our objective is to see that the deal did not hail an end to tractor pro- strapped for cash.“When you have to McCormick name continues to grow duction at the site and the company sell your manufacturing facility, then and perform in the global market- had no plans to shift manufacturing. turn around and pay rent on it to free place,” says Morra. “In order to stay Continued on page 2

Slowing Worldwide Markets Will Challenge AGCO in ‘07

With 70% of farm machinery sales coming from markets strength in Eastern Europe offsetting softer turnover in outside of North America,AGCO Corp. finds itself more vul- Western Europe.AGCO sees Eastern Europe, and Russia in nerable to regional pressures than the other major ag equip- particular, as a significant growth opportunity,given aging ment makers.As a result, 2007 could present some particu- Continued on page 3 larly significant challenges in the company’s quest to become the world’s second-largest farm machinery builder. In South America, which accounted for 12% of its sales in 2005, AGCO is projecting industry equipment sales to decline 5-10% as farmers face debt repayments following a 2-year moratorium, according to Bank of America analyst Seth Weber. Farmer income levels in Brazil were projected to finish flat in 2006 reflecting the strong Real and drought conditions, though profits are expected to return in 2007. “On balance, sugar farmers have fared better than corn and soybean farmers,”says Weber.“Tractor sales in Brazil — AGCO has roughly 60% market share — have recovered in recent months, though sale of combines remain low. AGCO’s announced initiatives in South America include lean manufacturing and cost/inventory reductions.” In Europe, AGCO expects flat sales in 2007, with

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. Continued from page 1 competitive, we have to continually the restructuring of its St. Dizier facil- improve manufacturing efficiencies review the way we structure our busi- ity in France.This facility is responsi- and strengthen our ability to operate ness and, most importantly, control ble for the design, development, man- successfully in the agricultural mar- our operating costs by improving effi- ufacturing and assembly of transmis- ket, positioning the company for a ciencies where possible.” sions for McCormick products. stronger future,”says Morra. Earlier this year, McCormick “We are convinced that the Argo’s sales totaled more than $1 International successfully completed restructure process will significantly billion in 2005.

Montana Tractor Sheds Light on Supply Picture at Dealer Meeting Ag Equipment Intelligence attended Montana Tractor’s employed by Daewoo, Hyundai and Kia. Dealer Convention in Springdale,Ark., on January 4-5.The LS supplies Montana with tractors in the 27-57-hp second-annual convention featured a private media session range.While LS is Montana’s primary supplier in this range, that included Rodney Miller, CEO, Bryan Hunt (part-owner), Montana also sources tractors from UTB (Romania) and and two representatives from South Korean tractor manu- TYM (South Korea).According to Kim, LS has plans in place facturer LS (part of the LG Group). Also present was to manufacture higher horsepower tractors in the 72-90 hp Ameriquip, the primary loader supplier for Montana (han- range as well as subcompacts, for which a new facility in dling 96% of its 3,500 loaders this year), which is now the China will become operational in 2008. By 2010, the firm Kiel,Wis.-based manufacturer’s second-largest client. intends to double its unit production to the U.S., from South Korea’s second-largest conglomerate, LG is a $100 10,000 to 20,000 units. billion group that consists of three divisions: electronics and At Montana’s Arkansas facility,only final assembly,detailing chemicals (LG), energy and distribution (GS) and industrial and preventive maintenance steps are required, as most trac- electrical/electronics and materials (LS). tors arrive in a semi-finished state.Other suppliers cited during The tractor machinery division (with factories in the event included Koyker,Titan Tire,Nardi and Bradco. Gunpo and Jeonju) is part of LS. It does $200 million in 15 In other news, Montana reported that its “retail sales nations and exports 70% of its product to the U.S. About grew 48% in 2006, when the industry itself was in a freefall,” 8,000 of the firm’s 150,000 employees are housed within says Miller. Hunt talked a great deal about how the primary the LS Cable Division. aim for 2007 would not call for continued significant jumps LS entered the U.S. market through an agreement with in dealer numbers (dealers grew by 42% in 2006), but rather Long Agribusiness (FarmTrac) in 1998, and continues to plans to focus on helping existing dealers sell more aggres- work with FarmTrac as a sub-line supplier today.“LS has sively in 2007.According to Montana staff, 80 dealers sold 20 become a very good supplier of tractors due to its common or more tractors in 2006. experience in auto manufacturing,” said Ju-Chan Kim, LS The convention introduced dealers to the new R series Tractor, citing the continual improvement practices tractors (the first designed with input from the Montana team), discussed solutions to the initial growing pains that the fledgling tractor company experienced and revealed new programs for 2007, which included the strongest aged inventory program that Miller has seen in his career. Much emphasis was given to forthcoming marketing programs that Michael Turley, Route 3 Marketing, is developing to target the rural lifestyle customer.Turley, a long- time veteran of the Osborn & Barr marketing firm, joined Montana after the marketing firm had to back off the account after fellow client John Deere threw a competitive red flag on the firm handling both businesses. With the unexpected death of co-founder J.B. Hunt in November, questions have been raised to AEI about In the 3 years since its founding, Montana Tractors has grown whether the ownership will remain committed or look to its retail distribution from 85 to 355 sites. According to divest the company.Bryan Hunt addressed this saying that Montana officials, 65% of the small tractor market is located the Hunt family and the other owners (Dan Downing and between Houston and Baltimore. Bars represent the number of Charles Goforth) remain committed to the 5-year-plan dealers and the numbers above the the bars indicate how developed in 2004, which includes being a top-5 tractor Montrana Tractor’s sales have grown in the past 3 years. manufacturer in its horsepower class by 2010.

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2 Ag Equipment Intelligence/January/2007 Continued from page 1 AGCO SEES POTENTIAL AGCO CORP.WORLDWIDE SALES ($ IN MILLIONS) IN BUILDING FORAGE 2005 2006E 2007E 2008E HARVESTERS Segment Sales In the December 12 issue of the North America 1,607.8 1,293.1 1,296.1 1,399.8 English publication Farmers Weekly, South America 648.5 628.1 650.0 715.0 AGCO’s chairman and CEO Martin Richenhagen, says the farm equip- EAME 2,988.7 3,240.6 3,293.2 3,540.2 ment maker is looking at building for- Asia/Pacific 204.7 160.8 161.0 177.1 age harvesters. TOTAL 5,449.7 5,322.6 5,400.3 5,832.1 “There may be some potential for Segment Operating Income AGCO Corp. getting involved in the forage harvester business in the North America 17.1 (50.1) (21.0) 28.0 future and we are investigating grow- South America 37.8 41.0 42.1 53.6 ing markets such as Eastern Europe EAME 242.5 278.3 273.6 308.0 and China,” said Richenhagen. “This Asia/Pacific 35.0 20.2 20.7 26.6 new market opportunity supports the TOTAL 332.4 289.4 315.4 416.2 changing environment of our business with regard to renewable ener- gies and the future of agriculture. fleets and the growing need for tech- and more of a build to order system. “If AGCO does invest in this mar- nology.The company estimates its Asia-Pacific has faced challenges ket,” he said, “we would see it as a tractor share above 20% in most mar- recently due to drought in Australia further fulfillment of a full product line kets, while product opportunities and reduced subsidies in Japan, offering for our customers. The for- remain in the harvesting and sprayer though the market should stabilize in ager market isn't very large, but we anticipate it to increase more than markets. Operating strategies include 2007. AGCO estimates market share 30% during the next 5-10 years.” simplifying manufacturing processes in this region in the low teens.

AGCO CORP.WORLDWIDE SALES GROWTH & OPERATING MARGINS 1Q06 2Q06 3Q06 4Q06E 1Q07E 2Q07E 3Q07E 4Q07E 2005 2006E 2007E 2008E

Sales Growth North America -18.0% -26.0% -26.0% -8.0% -6.0% -3.0% 4.0% 6.0% 14.0% -20.0% 0.0% 8.0% South America -7.0% -13.0% 1.0% 10.0% 4.0% 5.0% 3.0% 2.0% -19.0% -3.0% 3.0% 10.0% EAME 1.0% 4.0% 8.0% 20.0% 0.0% 5.0% 5.0% -3.0% 4.0% 8.0% 2.0% 8.0% Asia/Pacific -28.0% -25.0% -24.0% -10.0% -5.0% 0.0% 2.0% 2.0% 7.0% -21.0% 0.0% 10.0% TOTAL -7.0% -8.0% -4.0% 10.0% -1.0% 3.0% 4.0% 0.0% 3.0% -2.0% 1.5% 8.0% Operating Margin North America -1.7% 0.7% -7.4% -7.5% -4.0% -1.5% 0.0% -1.0% 1.1% -3.9% -1.6% 2.0% South America 7.9% 5.5% 7.2% 5.5% 8.0% 5.5% 7.5% 5.0% 5.8% 6.5% 6.5% 7.5% EAME 7.6% 9.5% 7.2% 9.5% 7.3% 9.5% 7.5% 8.5% 8.1% 8.6% 8.3% 8.7% Asia/Pacific 11.3% 10.1% 13.8% 14.0% 12.0% 10.5% 4.0% 14.0% 17.1% 12.5% 12.8% 15.0% TOTAL 5.2% 7.0% 4.2% 5.1% 4.5% 6.6% 6.1% 5.9% 6.1% 5.4% 5.8% 7.1% Source: Company documents and Banc of America Securities LLC estimates

FARM MACHINERY TICKER (AS OF 1/12/2007) 1/12/07 12/13/06 1-Year 1-Year P/E Avg. Market Mfr. Symbol Price Price High Low Ratio Volume Cap.

AGCO AG $31.78 $31.20 $35.57 $16.74 NA 2.61 M 2.90 B Alamo ALG $24.61 $23.62 $26.00 $19.25 23.30 5,903 240.22 M Art’s Way ARTW $7.10 $6.73 $9.19 $4.87 16.90 3,220 14.01 M Caterpillar CAT $59.74 $61.49 $82.03 $58.82 11.80 7.21 M 38.86 B CNH CNH $28.17 $28.08 $30.60 $18.08 25.11 265,765 6.65 B Deere DE $99.33 $94.70 $101.40 $66.90 13.83 2.52 M 22.60 B Kubota KUB $46.10 $44.74 $60.60 $38.51 16.35 18,890 11.94 B

Ag Equipment Intelligence/January/2007 3 SPOTLIGHT ON EUROPE Italy’s Telehandler Makers Set to Do Battle Italy’s burgeoning telescopic handler moved its headquarters and produc- Correggi, vice president. manufacturers are jockeying for posi- tion base from Thiene in France to He identifies the U.K., Australia, tion in an increasingly crowded market. Breganze in Italy where the company Denmark, France, Spain and Portugal In recent months, Faresin has dis- already makes tractor-powered and as the company’s main export mar- solved its manufacturing and distribu- self-propelled cattle feeders. kets, with plans to enter the U.S. mar- tion joint venture with French part- Faresin operates seven factories ket on the horizon. ner Haulotte; Dieci has built a $25 mil- and reports annual sales turnover Merlo, which reported turnover lion factory with a capacity of 2,500 equivalent to $77.5 million; some $41 equivalent to $361 million last year,has telehandlers a year; and Merlo is chas- million is generated by telehandler set ambitious growth targets as its con- ing a fifth of the European market for and agricultural machinery sales in ventional and multi-purpose telehan- agricultural, construction and indus- roughly equal proportions. dlers continue to attract new buyers. trial handlers and a sales turnover up The Faresin Agri Division makes According to recent reports, the from the equivalent of $361 million feeder-mixers for cattle and distrib- company claims market leadership in a last year to more than $387 million in utes them mainly in Europe through number of European countries and is 2006. importers and a growing number of said to be on target to sell 650 telehan- According to Faresin, “diverse the company’s own export market dlers to farmers in Italy this year, strategic and marketing choices” led branches. accounting for half the market. The to the dissolution of its joint venture Dieci’s new factory houses innovative MultiFarmer will account for with construction equipment firm offices, storage and production lines, some 20%. Unlike handlers that have Haulotte after 3 years of active collab- with improved efficiencies enabling rear three-point linkage and PTO added oration in the production and distri- output to be increased from the pres- as an after-thought, the MultiFarmer is bution of telescopic handlers. ent 1,000 machines a year — 80% of designed from the outset as a multi-pur- Faresin Group has acquired full which are telehandlers — without pose machine that operates as a han- ownership of the operation and adding to staff, according to Ciro dler and a light-duty tractor.

Claas Sales Improve by 8.1% During 2005-06

Improved performance from all three to 33.5 million euros ($44 million). for 2007 predicts stable markets in of its business sectors led to an 8.1% Claas, headquartered in both Europe and North America, with increase in sales for the Claas Group Harsewinkel, Germany, saw a modest likely firming of demand in Western during its 2005-06 fiscal year, reach- 1.6% increase in sales in Western Europe offset to some extent by the ing a record $3 billion at current Europe, the company’s most impor- impact of rising input costs for farm- exchange rates. Profitability soared tant agricultural engineering market. ers in the developing farm machinery more than 50% compared to the prior The firm also experienced a shortfall markets of Central Europe. year with pre-tax earnings climbing in Central Europe compared with last The markets in Eastern Europe from $113 million to $172 million. year, while sales in Eastern Europe are likely to continue on an upward Sales of harvest machinery and increased during the period. trend in 2007, says Claas, and it agricultural tractors matched the Strong growth of more than 25% expects the number of western prod- group trend with an 8.3% increase in was recorded in the U.S., with higher ucts being manufactured there to con- sales to 2.16 billion euros ($2.84 bil- forage harvester sales in particular continue rising. However, the firm has lion) but sales of driveline and other tributing to the improved performance. concerns about increasing market components increased by almost 15% The German company’s outlook protectionism in the region.

European Ag Machinery Market Valued at $14.5 Billion

With its farm equipment mar- eign farm equipment reached ket valued at nearly $15 bil- $2.1 billion in 2005 and lion, Europe accounts for 40% exceed French domestic pro- of the global market. France, duction, accounting for 58% of with a 25% market share, the total market. The U.S. is leads Europe as the single one of France’s top suppliers biggest market for ag machin- with a 12% share of the ery in the EU. Imports of for- import market.

4 Ag Equipment Intelligence/January/2007 Krone Records Highest Sales Ever; Up 38% in NA Bernard Krone, Germany’s fast-grow- petitors and to stop producing tillage in both North America and Europe. ing farm machinery manufacturer, equipment to focus on grass and for- According to Voss,contractors and cus- recorded its best sales figures in the age machinery. tom operators are opting for new Big company’s 100th year. Sales director Wilhelm Voss has a X models over other established At $346 million, revenues from positive outlook for the current year, makes, especially as bio-energy crop agricultural machinery sales in the fis- with sales revenues of $373 million fore- production grows in Central Europe. cal year ended September 2006 were cast, predicting more buoyant markets Krone produced 220 self-pro- up 19.5% compared with the previ- in France and the U.K. and continuing pelled harvesters last year and gained ous year, while the machinery retail- recovery in Germany,where Krone saw a 26.4% share in the German market, ing business in Germany recorded a a 28% sales increase last year. which totaled 451 units. This region 5% increase in sales at $90 million. Voss also predicts a stable was dominated by Claas, which sold Together, the two operations account demand trend in Eastern Europe and 119 of the high horsepower for 34% of group sales; Krone’s other North America, where in the past machines, including twin-engine units. main activity is the manufacture of financial year Krone North America, Together with the Big M self-pro- over-the-road semi-trailers. based in Memphis, Tenn., reported a pelled mower and big square baler The figures for Krone’s agricul- 38% increase in sales over the previ- lines, Krone’s high-value products tural machinery manufacturing oper- ous year. account for an accelerating share of ations at Spelle, Germany,seem to vin- Krone is also anticipating growing sales revenues, growing from 26% in dicate the decision to ignore the prod- sales of its newly revamped range of 2003-04, through 39% last year and a uct diversification policies of its com- Big X self-propelled forage harvesters forecast 50% in 2006-07.

Torotak to Introduce ‘Simpler, Quieter’ IVT Transmission

A new style of infinitely-variable trans- variator and it should be cheaper to rights to develop the technology for mission is set go into production in make because fewer parts are agricultural applications and has an the U.S. this year and could be operat- involved.” option to manufacture transmissions ing in farm tractors within 2 or 3 First production units are due to in the 30-150-hp range. years. be assembled early this year by Uzel owns the Holder compact The device, which has been cre- Infinitrak Drive Systems, a Cleveland, tractor company in Germany and ated by British design and develop- Ohio-based joint venture between makes farm tractors under a Massey ment firm Torotrak, is said to be sim- Torotrak and outdoor power equip- Ferguson license for sale in Turkey. It pler and quieter in use than current ment manufacturer MTD Holdings. also builds AGCO’s 400-series 50-100 CVT drives because the variator is Infinitrak holds the global intellectual hp entry-level MF models, which are mechanical rather than hydraulic and property rights for the 0-30-hp power sold in North America and Europe. there are no clutch packs or interme- bracket and North American rights for A key element of Uzel’s interest diate gears as in some systems. 30-60-hp applications. in the transmission system is the sim- “The technology is readily In Europe, Torotrak is working ple hydro-mechanical control that scaleable so it can be applied to trac- with one of the industry’s biggest off- Torotrak engineers developed for tors of different sizes as well as other highway vehicle driveline manufactur- small to medium sized tractors.There off-highway and on-highway vehicles,” ers to produce ready-made transmis- is also a sophisticated electronic con- says John Fuller, leader of Torotrak’s sions for tractors and other vehicles. trol system intended for higher per- hydraulics group. “It requires little Two tractor makers are said to be formance tractors that gives engine- maintenance because there is no interested in using the novel design. transmission management strategies metal-to-metal contact between the In addition,Turkey’s biggest trac- equivalent to those available with cur- traction drive components within the tor manufacturer, Uzel, has acquired rent CVT drives.

CNH to Split Blue and Red Brands in Europe — Again

Not seeing the success it hoped for As a result, the ex-Ford Basildon vice president of New Holland’s oper- when it consolidated the manufactur- Works in England will now serve as ations in Europe, management of both ing and marketing of its New Holland the headquarters for New Holland, brands is now completely separated. and Case IH brands, CNH has decided while Case IH is moving its base to “We need to differentiate ourselves. to differentiate the two product lines the Steyr factory at St. Valentin in One step we’ve taken as New Holland in Europe,according to a December 15 Austria. is to markedly improve our service report in Farmers Weekly. According to Simon Thornton, backup.”

Ag Equipment Intelligence/January/2007 5 Belarus Equipment Makers Pushing for Increased Exports Farm tractor and machinery manufac- for local assembly of tractors in Russia, which is already its biggest turers in the Eastern European state of Venezuela and Brazil. trade partner, accounting for 85% of Belarus are pushing to increase In the first 8 months of last year, exports. Last year, Russian farming exports of their products during the production of MTZ/Belarus tractors enterprises reportedly bought $52 coming year. MTZ, the tractor manu- and other power machines was million of Gomselmash machinery,up facturer that sells under the Belarus reportedly up almost 17% to 32,900 more than 45% compared to 2005. name in most export territories, plans units. Exports in the first-half report- The Belarus concern sells its har- to increase sales into South America, edly grew 8.5% to 22,950 units with vesting machinery into a number of while harvest machinery manufactur- an increase in value of more than 25% regions in Russia, but is looking for dis- er Gomselmash is targeting its neigh- to $328 million. tribution outlets where it is not repre- bors, Russia and the Ukraine. Gomselmash is aiming for a more sented. A pilot consignment of har- Hit by the loss of traditional substantial increase in export sales of vesters has been sent to the Eastern Bloc customers to western its combines, forage harvesters, bi- Krasnoyarsk region for demonstrations manufacturers, Minsk Tractor Works directional power units for mowing and the company plans to continue a (MTZ) is urgently seeking new mar- and other field work, cultivation joint venture in the Yaroslavl region to kets as it gradually recovers from a implements and potato, sugar beet produce forage harvesting machinery. drop in both domestic and export and flax harvesters. In the Ukraine, says Zhmailik, demand for its tractors. In 2007, says general manager Gomselmash wants to sell $15 million Among initiatives reported by the Valeri Zhmailik, the company aims to of farm machinery,a big increase over Interfax-West news agency are plans sell 40% more of its production to the $2 million it sold in 2006.

New Study Confirms Growing Number of ‘Ruralpolitans’

A survey commissioned by the • 27 million households • 82% own a pick-up truck National Association of Farm • 69,126,313 family members • 40% own a SUV Broadcasters (NAFB), confirms the sig- • 51% have an income of at least • 40% own an ATV nificant infuence that ‘ruralpolitans’ $75,000 per year (U.S. mean is • 17% own a UTV or ‘weekend farmers’ are having on $44,000) • 62% own a tractor of less than the farm equipment industry.It should • 72% work full time off the acreage 18 hp also be a clear signal to ag machinery • 13% retired • 57% own a tractor between dealers of the potential this group has • 97.8% own their land 18-50 hp for increasing sales. • 89.8% have dogs (dog owners in • 26% own a horse trailer A sampling of the data collected on the U.S. = 64.9%) • 52% have hunting licenses the target segment of people in the • 48% own horses • 80% prefer to do their own home U.S. that own 3 to 100 acres shows: • 60% own cattle or property projects

Titan International Sets Ambitious Sales Growth of 12% for Year Managers at North America’s fast- turers and their customers will operations will be a significant addi- growing off-highway tire manufactur- improve sales of higher-specification tion to Titan’s revenues, which in er,Titan International, have been given tires at the expense of low-cost 2005 amounted to $460 million. ambitious financial targets for 2007 as imported products. “Titan currently has excess capac- the company seeks to capitalize on “Once OEMs understand that ity and the potential to increase out- the two tire-production facility acqui- they lose market share with no-name put of off-the-road tires by at least 30% sitions it made last year. brand tires on their equipment,Titan over the next 12 months,”says Taylor. Titan chairman and CEO, Maurice will continue to pick up business,”he “We anticipate moving a large portion Taylor, set a goal of $800-$825 million says.“We also have the advantage of — about $10-$12 million — worth of in sales for the year, up 11-12% from the largest dealer network in North idled assets to our tire factories while the 2006 target.Taylor is also aiming America, with the combination of continuing to push for the disposal of for a 40-44% increase in EBITDA to Goodyear, Titan, Continental and the remainder, and expect to install $105-$115 million. General brands.” $8 million worth of new equipment “Although we’ve seen a dip in the As a follow-up to the Goodyear during the course of this year.” ag market,” says Taylor,“I think large ag tire purchase, Titan International Titan has also increased its stake farm tractor demand will start to pick paid $41.4 million, plus another $11.5 in Titan Europe, a former subsidiary, up in 2007, especially given the million for inventory, to acquire by almost 2% to just over 17%, demand for corn from the new Continental’s off-the-road tire facility through a shares issue made in pay- ethanol factories.” in Bryan, Ohio last year. ment of the entire long-term debt of He also is confident that chang- Yearly estimated sales of $215 approximately $7.9 million owed by ing attitudes among tractor manufac- million and $125 million from the two the U.K.-based business. 6 Ag Equipment Intelligence/January/2007 DECEMBER U.S. UNIT RETAIL SALES Equipment Sales November December December Percent YTD YTD Percent Equipment 2006 Field Falloff Slows in 2006 2005 Change 2006 2005 Change Inventory December Farm Wheel Tractors-2WD The North American agricultural equipment industry retail sales com- Under 40 HP 7,985 7,971 +0.2 122,340 127,403 –4.0 60,099 parisons finished 2006 on a relatively lackluster note, according Robert 40-100 HP 6,580 6,259 +5.1 75,555 75,684 –0.2 37,366 McCarthy, financial analyst for Baird. “December row-crop tractor and com- 100 HP Plus 1,813 1,988 –8.8 16,682 19,771 –15.6 6,249 bine sales declined on a year-to-year Total-2WD 16,378 16,218 +1.0 214,577 222,858 –3.7 103,714 basis, but the declines weren't as steep as those seen during the second half Total-4WD 272 262 +3.8 2,988 3,638 –17.9 768 of ‘06,”he reports. “December’s relatively soft com- Total Tractors 16,650 16,480 +1.0 217,565226,496 –3.9 104,482 parisons continue to suggest that recent crop price increases may take SP Combines 809 841 –3.8 6,177 6,773 –8.3 1,155 time to translate into stronger agricultural equipment demand, a senti- ment echoed by AEM's forecast for DECEMBER CANADIAN UNIT RETAIL SALES flat-to-down-slightly 2007 agricultur- November al equipment sales,”says McCarthy. December December Percent YTD YTD Percent Equipment 2006 Field 2006 2005 Change 2006 2005 Change According to the latest sales figures Inventory released by the Assn. of Equipment Manufacturers, North American retail Farm Wheel sales of row-crop tractors (2WD, larger Tractors-2WD than 100 hp) declined 5% year-to-year Under 40 HP 706 593 +19.1 9,856 8,198 +20.2 4,630 in December after a 25% drop in November.Overall,sales finished down 40-100 HP 735 576 +27.6 7,386 6,760 –1.2 1,629 13% for full-year 2006.During the past 5 years,December's retail sales have con- 100 HP Plus 378 318 +18.9 3,735 3,780 –9.3 2,996 tributed 9% of annual sales on average. The 13% decline in 2006 full-year Total-2WD 1,819 1,487 +22.3 20.977 18,738 +11.9 9,255 row-crop tractor retail sales was the Total-4WD 68 69 –1.4 655 637 +2.8 141 most severe year-to-year decline since a 15% drop off in 200, according to Total Tractors 1,887 1,556 +21.3 21,632 19,375 +11.6 9,396 the Baird analyst. The results of the December SP Combines 121 148 –18.2 1,583 1,564 +1.2 389 sales survey show: • North American retail sales of 2006 4WD tractors increased 2% year-to- U.S. UNIT RETAIL SALES OF 5 year year, rebounding from four straight 2-4 WHEEL DRIVE TRACTORS & COMBINES average 15%-plus monthly year-to-year 30,000 declines. Full-year 4WD tractor sales 28,000 declined 14% in 2006. • Retail sales of combines declined 26,000 6% in a year-to-year comparison, con- 24,000 sistent with November’s 5% decline. 22,000 December contributes 11% of annual 20,000 combine sales on average. Combine sales finished the year down 6% for 18,000 ‘06, the third-largest annual decline 16,000 since 1993, though the percentage 14,000 decline was significantly more modest than the 47% decline in 1999. 12,000 • Dealer inventories of row-crop 10,000 tractors, 4WD tractors and combines 8,000 all declined by double-digit percent- 6,000 ages in November (down 14%, 18%, JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC and 13%, respectively). —Assn.of Equipment Manufacturers Ag Equipment Intelligence/January/2007 7 Growth of Ag Stocks Surpass Most Other Market Sectors in ‘06 Surprisingly, the share value of the major firms involved in plus.According to the Chicago Tribune, the advances were agriculture rose more than 30% and surpassed the growth of the largest since 2003. most other major market sectors in the U.S.economy in 2006. According to the paper, the biggest winning category By the time the trading year ended, the Dow Jones for 2006 was telecommunications stocks, which were up industrial average had gained 16%, the Standard & Poor 33% and energy stocks, which gained 23%. 500 index grew by 14% and the NASDAQ had risen by 10% But according to AgriMarketing,a portfolio of the publicly traded companies that have a significant presence in North American agriculture showed an increase of 34% for 2006. While only three of the companies comprising the GOT NEWS, portfolio — AGCO, CNH and Deere & Co. — were equipment makers, each surpassed the gains posted by the other market sectors covered in the Tribune report.The largest VIEWS, gainers in share value within the ag sector, according to AgriMarketing included: IDEAS? • Terra Nitrogen +93% • Syngenta +54% • AGCO +87% • CNH +49% Do you have news that should be covered in • Potash Corp +80% • Mosaic +46% Ag Equipment Intelligence or a story lead that you want • Delta & Pine Land +79% • Deere & Co. +42% us to follow up? Contact Dave Kanicki, managing editor, at • Lindsay Corp +71% • Monsanto +37% 800-645-8455 ext. 414 or at [email protected]. • Valmont +67% • Bayer +31% • CF Industries +69% • DuPont +19

TAKING STOCK: UNDER THE SURFACE AT AGCO AND DEERE On speculation alone, the share value of the major farm do not expect energy prices to stay down for very long.” machinery makers should see another solid year in 2007 While Deere is clearly the 600-pound gorilla when it and into ’08.While few analysts present coverage on CNH comes to farm machinery, Rentschler wonders about the as nearly 90% of its stock is held by Fiat, they are keeping a firm’s long-term outlook for construction equipment. watchful eye on both AGCO and John Deere and other “Deere is a ‘me-too’player in construction and that’s not a dynamics that may affect these companies’ performance role that’s comfortable for them.” farther down the road. AGCO — While much of the company’s sales success THE RISING VALUE OF AGCO AND DEERE SHARES in 2007 is heavily dependent on international markets (see “Slowing Worldwide Markets Will Challenge AGCO in ’07” on page 1 in this issue of AEI), Barry Bannister, managing director of Industrial & Basic Materials Research for Stifel, Nicolaus, sees other potential and potholes for the Duluth, Ga.-based firm during the coming year. Calling AGCO the “weakest North American player,” Bannister believes the equipment maker has “room to expand its Caterpillar relationship in the area of adding combines while better distribution in North America may help improve its share in tractors.” Bannister also says that there is concern about AGCO’s loss of custom application market share in sprayers as farmers appear to be interested in owning — not con- tracting — spraying capability. Charlie Rentschler, analyst for Wall Street Access, also speculates whether AGCO’s Challenger equipment, dis- tributed through Cat’s construction dealers, will become the billion-dollar brand that it appeared to be when the partnership was formed. John Deere — “Very low inventories, especially in combines, and the potential for that category to resurge in 2007, could bode well for Deere production, possibly in excess of retail, and thus incremental profit margins in North American ag equipment,”says Bannister. As growers’ incomes improve with the rising price of corn and He adds that the recent decline in fuel costs erodes some beans during 2007, the stocks of AGCO and John Deere is of Deere’s new engine’s appeal in row-crop tractors,but “we expected to produce solid results as well.

8 Ag Equipment Intelligence/January/2007