September 15, 2016 Vol. 22, Issue 9

• Fendt Going ‘Full Line’ • Titan Lowers Backlog • Weak Sales in August

Report Suggests Driverless Sales Could Reach $31B by 2024

“The impact of driverless Worldwide Driverless Tractor Revenue & Shipments on farm operations will be dramatic, and the vehicles hold the potential 2015-2024 to provide a huge boost to produc- $35,000 180,000 tivity,” says Manoj Sahi of Tractica. In Revenue Shipments 160,000 a report issued on Sept. 4, following $30,000 the introduction of Case IH and New 140,000 $25,000 Holland’s concept autonomous tractors 120,000 at the Farm Progress Show on Aug. 30., $20,000 Tractica expects rapid growth of driver- 100,000 less farm vehicles starting about 2020. $15,000 80,000 (Units)

Based in Boulder, Colo., Tractica is a ($Millions) 60,000 market intelligence firm that focuses $10,000 on human interaction with technol- 40,000 $5,000 ogy. In 2015, the company conducted 20,000 an extensive study of the market opportunity, the find- $0 0 2015 2016 2017 2018 2019 2020 2021 2021 2023 2024 ings of which were published in a report entitled Agricultural Robots. One of the key findings of Tractica’s 2015 Agricultural Robots report was the forecast that driverless tractor revenue would reach $30.7 billion by 2024. Sahi said, “The research was focused Source: Tractica Continued on page 2

Early Orders of Farm Machinery Remain Tough to Come By

Although a few more dealers say their Early Orders 2017 vs. 2016 vs. 2015 vs. 2014 early equipment orders are up com- 2017 2016 2015 2014 pared to this time last year, overall, new farm machinery order books Up 10% or more 1.0% 0.0% 1.1% 0.0% continue on a downward slide that Up 6-10% 1.0% 0.4% 1.8% 7.2% began 3 years ago. Up 1-5% 12.2% 6.5% 7.5% 20.0% Slightly more than 14% of North Same as Last Year 17.3% 29.8% 31.3% 45.0% American ag equipment dealers are reporting early orders are in bet- Down 1-5% 15.7% 10.5% 13.9% 16.7% ter shape than they were when Ag Down 6-10% 14.2% 12.1% 16.0% 11.1% Equipment Intelligence conducted Down 10% or more 38.6% 40.7% 28.4% 0.0% its 2016 Dealer Business Outlook & Source: Ag Equipment Intelligence Trends survey last September. This compares with 7% of dealers who that their early orders had increased ing decreases in their order books for reported an increase in early orders from the previous year. 2017. This year nearly 70% of dealers 12 months ago and about 10.5% the The small increase in dealers report- say their early orders, or presells, for year before for 2015. These percentag- ing higher early orders for new 2016 new 2017 equipment are lower than es are way down from the more than equipment is pretty much offset with they were last year, which continues a 27% of dealers who reported in 2014 a larger percentage of dealers report- 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 Media, may be clients of this and other Lessiter Media 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. Report Suggests Driverless Tractor Sales Could Reach $31B by 2024 ...Continued from page 1 on the applications, market drivers and vider responsible for developing and stationary or moving obstacles in its key challenges that could impact the refining autonomous vehicle technol- path and would stop on its own until growth of agricultural robots. One of ogy for concept autonomous tractors, the operator, notified by audio and the key findings of our report was the including the Case IH Magnum and visual alerts, assigns a new path.” forecast that driverless tractor revenue New Holland T8 NHDrive. According According to Tractica, at present, would reach $30.7 billion by 2024. to Tractica, ASI, which is based in apart from CNH Industrial and ASI, Like any other autonomous or semi- Utah, is the industry leader in off-road there are other companies including autonomous (supervised) unmanned autonomous solutions with nearly 2 a few startups that have been actively ground vehicles (UGVs), driverless decades of experience in the domain. working to produce marketable driv- tractors are programmed to navigate, Sahi said, “As a smaller and more erless tractors and have made strides understand their position, determine agile technology developer, ASI is able toward substantial prototypes and speed and avoid obstacles, such as to partner with large global compa- testing. The prominent ones among people, animals or objects in the field, nies such as CNH Industrial to help these are , AGCO and while performing their tasks.” them go to market with multi-vehicle Autonomous Tractor Corp. According to Case IH Brand autonomy faster and more economi- Sahiwent on to say, “In Tractica’s President Andreas Klauser, the con- cally than they could in any other way. analysis, driverless tractors are cer- cept was created to validate the “These tractors will have the ability tainly on the right track and the technology and to collect customer for autonomous seeding, planting and future looks promising. feedback regarding their interest and tillage for broadacre and row-crop “Tractica believes the driverless need for future autonomous products farming. ASI believes that its advanced tractor market will continue to evolve for their operations. “In many parts of path planning technology, along with relatively quickly and by 2020, the the world, finding skilled labor during obstacle detection, would enable farm- market opportunities should be peak use seasons is a constant chal- ers to manage their fields more effi- attractive enough to pull in many of lenge for our customers,” Klauser said. ciently and safely,” said Sahi. “Through the non-agricultural companies that Autonomous Solutions Inc. (ASI) the use of radar, and onboard are currently involved with driverless is CNH Industrial’s technology pro- video cameras, the vehicle could sense technology,” he said. Claas Acquires Shredlage Technology for Producing Forage A little over a year since licensing over an inch — and then processing chopped product many times over the U.S.-developed Shredlage system it on board with specially configured in this way is said to significantly of processing forage corn, Claas has corn cracking rollers. improve bacterial fermentation after acquired the technology outright The saw-tooth profile with a coun- ensiling and during digestion in the from its owners. Dairy nutritionists ter-rotating spiral groove is designed cow’s rumen. Increased milk yield, Ross Dale and Roger Olson will con- to fully break down the cob pieces lower feed costs through a reduction tinue to advise the German manufac- in concentrates and improved animal turer on successful adoption of the “We are convinced that health are principal goals. technology by dairy farmers. Shredlage LLC promoted the tech- Claas board member Hermann shredlage delivers nology and supplied processing Lohbeck said, “We are convinced that a clear benefit to rollers for installation in forage har- shredlage delivers a clear benefit to customers. This adds vesters. The license agreement — customers. By taking over this well the finishing touches to which has now been overtaken by known brand, we are adding the fin- our technology concept the acquisition — allowed Claas to ishing touches to our technology for self-propelled produce the MCC-Shredlage cracker concept for self-propelled forage har- assembly alongside existing corn vesters. We are thrilled that the inven- harvesters...” cracking processors. tors of the technology will remain on These are manufactured at the board to advise us and our customers.” and crush and fully crack open the Claas Industrietechnik factory in Shredlage LLC was formed in 2008 kernels, while peeling “bark” from the Paderborn, Germany, for the Jaguar to promote a process that involves stalk material, which is shredded in a self-propelled forage harvesters sup- chopping forage corn into unusually longitudinal direction. plied through Claas of North America long sections of 26-30 mm — a little Enlarging the surface area of the and its dealers.

AG EQUIPMENT INTELLIGENCE is published monthly for the to the address shown above. U.S., Canada and Mexico print farm equipment industry by Lessiter Media, 16655 W. Wisconsin subscriptions are $499 per year. International print subscriptions Ave., Brookfield, WI 53005. © 2016 by Lessiter Media. All rights are $599 per year. Send subscription orders to: Ag Equipment reserved. Reproduction in any form of this newsletter content Intelligence, P.O. Box 624, Brookfield, WI 53008-0624. Fax: is strictly forbidden without the prior written consent of the pub- 262/786-5564. Phone: 262/782-4480 or 866/839-8455 (U.S. lisher. Please send any address changes as soon as possible only). E-mail: [email protected].

2 Ag Equipment Intelligence/September/2016 Early Orders of Farm Machinery Remain Tough to Come By...Continued from page 1 3 year run of significant declines. Co. initiated the monthly Dealer 2017 Ag Equipment Early In 2014, only 28% reported lower Sentiments & Business Conditions order levels than the previous year. Update survey in April 2011, equip- Orders vs. 5 Years Ago This percentage grew to 53% in 2015 ment delivery times were a major + 11-20% + 31% or more and 63% in 2016. issue. In early 2012, dealers were 4% 1% In this year’s survey, which looks reporting that the average time + 1-10% ahead to 2017 new equipment sales, between when an order was placed 2% nearly 39% of the 225 responding and the equipment delivered was Same dealers report that their early order over 6 months. In February and 14% – 31% or levels are down 10% or more vs. 12 March 2012, on average combine lead more months earlier. Another 14% says they times were 7.6 months, 4WD tractors – 1-10% 36% have fallen off between 6-10%, and were 6.2 months, row-crop tractors 7% 16% are reporting their order books 6.5 months and tractors under 100 – 11-20% are off 1-5% vs. the previous year. horsepower 5.1 months. 15% – 21-30% Overall, a net 54% of dealers are By the first quarter of 2015, long 21% reporting a lower level of early orders lead times for equipment deliv- for 2017. This compares with a net eries had greatly diminished. With Nearly 80% of dealers report that early 56% for the previous year and 42% broad availability of all types of order levels for new 2017 farm equipment two years ago. large ag equipment, Ag Equipment are far behind levels they saw 5 years ago, Equipment Lead Times. In his anal- Intelligence ceased surveying dealers when ag machinery sales were peaking. ysis of 2017 early orders, Michael Shlisky, about lead times in April 2015. Source: Ag Equipment Intelligence analyst with Seaport Global Securities, Early Orders vs. Peak. In this year’s noted “that early-order programs are less survey, dealers were also asked how say they were down by 30% or more, important in recent years, as much less the level of this year’s early orders com- and 21% say early orders for 2017 lead time is needed for delivery given pares with 5 years ago when the sales were down by between 21-30%. the reduced production levels across of farm machinery hit its peak. Less than 7% reported that early most heavy ag categories.” Overall, 78% of dealers report their orders for new equipment next year In fact, when Ag Equipment early orders were less than they were were higher for the year ahead than Intelligence and Cleveland Research in 2012 and 2013. Of this, nearly 38% they were 5 years ago.

FARM MACHINERY TICKER (AS OF 9/12/16) 9/12/16 8/15/16 1-Year 1-Year P/E Avg. Market MANUFACTURERS Symbol Price Price High Low Ratio Volume Cap. Ag Growth Int’l. AFN $43.63 $41.75 $44.61 $24.68 N/A 34,227 641.88M AGCO AGCO $47.48 $47.85 $56.00 $41.91 21.34 806,036 3.85B AgJunction Inc. AJX $0.71 $0.68 $0.73 $0.42 N/A 63,157 88.12M Alamo ALG $63.78 $64.73 $68.04 $43.98 16.20 66,048 733.34M Art’s Way Mfg. ARTW $2.82 $3.00 $4.39 $2.46 N/A 5,381 11.99M Buhler Industries BUI $4.85 $4.90 $6.00 $4.75 N/A 875 121.25M Caterpillar CAT $81.92 $84.15 $84.73 $56.36 54.61 4,281,770 47.86B CNH Industrial CNHI $7.27 $7.46 $7.91 $5.67 N/A 1,750,170 9.9B Deere & Co. DE $83.09 $78.28 $88.63 $70.16 16.65 3,447,110 26.13B Kubota KUBTY $71.02 $73.89 $86.30 $58.99 12.69 19,120 17.66B Lindsay LNN $71.19 $71.70 $79.27 $62.99 85.56 105,188 756.76M Raven Industries RAVN $23.03 $20.97 $25.47 $12.88 91.03 303,814 832.74M Titan Int’l. TWI $9.10 $9.07 $9.98 $2.50 N/A 416,970 491.82M Trimble Navigation TRMB $26.61 $27.85 $28.09 $15.90 57.85 1,417,020 6.63B Valmont Industries VMI $128.29 $131.05 $145.94 $92.33 52.17 119,800 2.9B RETAILERS Cervus CVL $11.73 $11.30 $15.35 $10.41 15.62 4,372 183.2M Equipment Rocky Mountain RME $9.19 $8.39 $9.29 $5.50 14.03 29,095 178.14M Equipment Titan Machinery TITN $10.97 $10.95 $14.42 $7.87 N/A 73,216 232.42M Tractor Supply TSCO $69.11 $86.03 $97.25 $68.02 22.16 1,495,910 9.24B

Ag Equipment Intelligence/September/2016 3 Titan Machinery Makes Strides in Inventory Reduction; Announces Note Repurchase

Titan Machinery, Case IH’s larger dealership Titan Machinery Equipment Inventory Analysis group, reported on Aug. 25 that revenues for the second quarter of fiscal 2017 were down 19.3% to $285 million vs. $353 million a year ago. Revenue from the sales of farm machin- ery was down by 25.5% and construction equipment revenue declined by nearly 4%. Sales of equipment by its overseas operations also fell by 13%. In addition to its earnings announcement in late August, on Sept. 14 the company said it had repurchased $24 million of convertible notes ahead of its maturity date. Inventory Progress. While sales continue to be weak, Titan continued to make progress during the quarter by continuing to reduce its inventory of both new and used equipment. The second quarter marked the sixth consecu- tive quarter the dealership group has reduced its used inventory. Reviewing results for the second quarter, David Meyer, Titan Machinery’s chairman and CEO, said, “We continue to concentrate on our inventory reduction and its positive impact on Titan Machinery continues to make progress with its inventory reduction efforts and our balance sheet, and expect to achieve the expects to meet its goal of reducing equipment backlogs by $100 million for FY17. $100 million inventory reduction goal for fiscal Source: Company reports 2017. We reduced used inventory in the first half of fiscal 2017 by $39 million or 15%, and through the reduced its total inventory by $450 million since the end first 6 months of this year we exceeded our target by $13 of fiscal 2014, as shown in the table above. million or 40% of our marketing plan for aged inventory Commenting on the glut of used equipment the industry through alternative channels.” is experiencing as a whole, Meyer said, “There is an over- Looking at Titan’s inventory reduction during the quar- hang now, but I believe as an industry everybody’s focused ter, Mircea (Mig) Dobre, senior research analyst with Baird, on moving those levels down to get to a more stable noted that the dealership sold $45 million of the $74 mil- market, which we’re going to see somewhere in the near lion targeted aged equipment inventory during the first future. I think a lot of the heavy lifting has been done and half of fiscal 2017, which was above management’s $32 we’re getting close to where we are going to get to that million target. stabilization point.” The improvements in used equipment inventory were Notes Buy Back. Titan made a big move to shore up seen both sequentially (down 14% vs. the end of fiscal its balance sheet with the repurchase of the convertible 2016) and year over year, Igor Maryasis, senior research notes. It said it had repurchased the additional $24 million analyst with Avondale Partners, said in a note to investors. principal amount of its 3.75% senior convertible notes due “Titan’s total inventory level also declined sequentially in 2019 for $20.9 million in cash. Titan expects to recog- despite a normal seasonal new equipment buildup,” he nize a pretax gain of approximately $1 million in the third said. “Separately, the company continued to exceed their quarter of fiscal 2017. aged equipment reduction plan, which through the first 6 Commenting on the decision to repurchase the notes, months of fiscal year 2017 was 40% ahead of target.” Meyer said, “Our continued reduction in inventory and the According to Maryasis, the dealership’s total inventory accompanying positive operating cashflow has enabled us levels have improved significantly over the past 2 years, to retire our convertible notes by an additional $24 million and by the end of FY17 they should be down nearly 50% ahead of the maturity date and at a meaningful discount. from the highs seen in fiscal 2014 and 2015. However, he We have now repurchased over $50 million of our senior added that “both new and used equipment inventory levels convertible notes during fiscal 2017. We continue to take remain elevated relative to depressed 12 month trailing the necessary steps to manage through this challenging sales, suggesting that more work likely needs to be done to operating environment by reducing our equipment inven- get to more optimal levels.” tory, generating positive cashflow, deleveraging our bal- By the end of fiscal 2017, Titan anticipates it will have ance sheet and reducing our interest expense.”

4 Ag Equipment Intelligence/September/2016 AGCO Looking to Expand Market for Fendt by Going ‘Full-Line’ AGCO’s Fendt unit — the “Jewel in the horsepower tractors, say Fendt manag- two models of the Katana self-pro- Crown,” as Chairman and CEO Martin ers. Production starts this month, with pelled forage harvester. They will be Richenhagen once described it — is 170 units scheduled for the year in total. joined in 2017 by the new Vario-Liner going full-line and exploring new mar- In addition to making a play for self-loading forage wagons. kets to deliver further growth. sales among large Midwest farming In the tillage crops sector, the grow- Fendt is also, for the first time in its 85 operations, the new design is also tak- ing strength of the brand is such that year history, supplying a product with ing Fendt into South America where Fendt now accounts for more com- another of AGCO’s brands on its flanks. Peter-Josef Paffen, chairman of the bines than Massey Ferguson at AGCO’s At the Farm Progress Show earlier this AGCO/Fendt management board, sees Breganze plant in Italy, says Paffen. month, the 380-500 horsepower Fendt a potential market in Brazil for state- Tractors remain Fendt’s core 1000 Vario series row-crop tractor was of-the-art machinery. product, though. Last year, the unveiled in Challenger colors as well as He also is dipping a toe in the water Marktoberdorf factory in southern the German brand’s new “nature green” in Africa, Iran and China, markets tradi- Germany sold 13,678 high ticket trac- livery as the high-tech tractor will be tionally associated with relatively sim- tors and the target for 2016 is similar available through both dealer networks. ple, low-tech tractors. “There are now at 13,500 units. The R&D budget for The new tractor is a technology regions in China that have large-scale, 2016, at the equivalent of $67 million, tour de force, introducing automatic modern farming operations,” he points remains at the same level as last year. torque distribution to the front and out. “We are preparing for the Fendt “Over 90% of Fendt tractors and rear wheels to help maintain trac- market launch there step by step.” harvesters go to Western and Central tion, in addition to on-board tractor In established European markets, Europe,” says Paffen. “Our mid-term and implement tire inflation pres- Fendt managers are pursuing their objective is to increase Fendt’s market sure management and a host of preci- “Route 66” full-line strategy to secure share in Europe, from the current 8.3- sion farming functions through the exclusive dealer outlets by selling a 10%, and to capitalize on the expandable VarioTerminal touchscreen. wider range of products. marketing structures we have in North These features, plus a relatively low The Fendt machinery range now America and the regions of Australia/ base weight with flexible ballasting includes hay mowers, tedders and New Zealand and Japan/South Korea for options, sets it apart from other 500 rakes, round and square balers and growth outside Europe.” Ag Equipment Sales Downturn Claims First Victim The first significant casualty of the market declines in key European mar- reliable, lean, simple, attentive and sales down- kets,” he said. responsive, as Angerer put it, difficul- turn has emerged with the insolvency “While Vogel & Noot has man- ties in restructuring group financ- of one of Austria’s leading field equip- aged to achieve, despite the market es, partly as a result of EU sanctions ment manufacturers. downturn, a growth in revenue and against Russia, has left it with lia- Vogel & Noot Landmaschinen is an improved financial result, it sub- bilities thought to be equivalent to a major manufacturer of moldboard around $20 million. plows and cultivation equipment; it Administrators hope to sell the also produces seed drills and crop “We did not do our business as a going concern to pro- sprayers. The business is owned homework for a couple tect the jobs of 110 staff, but there are by Machinery & Industrial Group of years and have already plans to sell the company’s Europe, a division of Concern Tractor disappointed many production facilities in Hungary and Plants in Russia. of our customers...” potentially shrink the business back In North America, Vogel & to concentrate of spares and wear Noot’s limited presence is princi- parts production. pally through Samson Canada Inc., sequently was confronted with the Vogel & Noot’s history dates Bécancour, Que. sheer facts of liquidity scarcity and back to 1872 with the production The company’s difficulties first organizational shortcomings. of hand shovels and spades before became apparent last year through “Evidently, we did not do our home- plow manufacturing was started and slow deliveries of products to deal- work for a couple of years,” adds other agricultural implements added ers and end customers. Group CEO Angerer. “We have disappointed many through acquisitions and its own Dieter Angerer acknowledged the of our customers — and we regret R&D developments. problem: “Vogel & Noot has experi- this truly, but a company with 140 Sales revenues peaked at €82 million enced very challenging times during years of experience never gives up — ($92 million) in 2008 before the finan- the last 2 years; strong growth expec- quite the contrary.” cial crisis hit. In 2014, a loss of €4 million tations in the beginning of 2014 had Despite efforts to re-organize the ($4.5 million) was recorded on sales of to be substantially revised after steep business to become more modern, €58 million ($65.2 million).

Ag Equipment Intelligence/September/2016 5 60% of Dealers Report Lower New Equipment Revenues in 2016

For most U.S. and Canadian farm Current Estimate Last Year’s Projection equipment dealers, 2016 was worse 2016 Revenues vs. 2015 2016 Revenues vs. 2015 than what they were projecting 12 +8% or more 6.8% 3.0% months ago. +2-7% 10.7% 14.2% Overall, the percentage of deal- ers responding to Ag Equipment Flat 17.5% 39.7% Intelligence’s 2016 Dealer Business –2-7% 17.5% 20.6% Outlook & Trends survey who –8% or more 43.7% 22.5% expected new equipment revenue Source: Ag Equipment Intelligence to increase vs. 2015 was pretty much dead on to the percentage A far larger percentage of deal- estimating they’ll see lower sales this who are now estimating revenue ers saw their new equipment rev- year compared to a year earlier. growth for the current year. At this enues decline in 2016 vs. 2015 than A year ago, nearly 40% forecasted point, 9 months into the year, a lit- projected decreases a year ago. Last a “flat” year. With three-quarters tle over 17% of dealers say their September, 43% of dealers were fore- of the year past, only 17.5% say new equipment sales revenues will casting lower sales revenues during they’re anticipating flat revenues increase in 2016. 2016. Currently, 61% of dealers are for all of 2016. Deere’s Big Ag Equipment Sales Lag Industry in August

John Deere released its monthly ag August 2016 Retail Sales equipment retail sales comment for August on Sept. 12. Comparing its U.S. & Canada Ag Industry* Deere** sales to the rest of the industry, the 2WD Tractors (<40 PTO hp) + 18% + less than the industry company indicated that its retail sales 2WD Tractors (40-100 PTO hp) flat – double digits lagged those of its competitors in the 2WD Tractors (100+ PTO hp) – 26% – more than the industry large equipment categories of 4WD and row-crop tractors, as well as com- 4WD Tractors – 39% – more than the industry bines. At the same time, the company Combines – 17% – more than the industry said its sales of utility tractors were July 2016 Inventories*** down double digits for the month. When it comes to inventories, U.S. & Canada Ag Industry* Deere** according to Deere, its dealer inven- 2WD Tractors (<40 PTO hp) 59% lower than the industry tories were below those of the rest 2WD Tractors (40-100 PTO hp) 66% lower than the industry of the industry in each of the major 2WD Tractors (100+ PTO hp) 53% lower than the industry equipment categories except 4WD 4WD Tractors 27% in line with the industry tractors in July. In that category it said its inventories were “in line with the Combines 24% lower than the industry rest of the industry.” * As reported by the Assn. of Equipment Manufacturers 3Q FY16 & Outlook. On Aug. 19, ** As reported to the Assn. of Equipment Manufacturers *** In units as a percent of trailing 12 months retail sales, as reported to the Assn. of Deere & Co. reported that net sales of Equipment Manufacturers the worldwide equipment operations Source: Deere & Co. declined 14% for the third quarter of fiscal year 2016, and 11% for the first 9 months compared with the same ag and turf equipment of 12.1% vs. periods a year ago. 8.9% a year earlier. The margin for CE AEI Copyright Notice Ag and turf sales fell 11% for the was 4.7%, down from 8.1% last year. Ag Equipment Intelligence is a quarter and 7% for 9 months due Fiscal 2016 net income guidance copyrighted publication of Lessiter largely to lower shipment volumes was increased to $1.35 billion from Media. Copying an entire issue to and the unfavorable effects of cur- $1.2 billion. For the full year, equip- share with others, by any means, is rency translation. These factors were ment sales are expected to be down illegal. Duplicating of individual items partially offset by price realization. 10% year-over-year vs. down 9% previ- for internal use is permitted only with permission of the publisher. Licensing Operating profit was $571 million ously. Sales for ag equipment in the agreements that allow distribution for the quarter and $1.3 billion year U.S. and Canada are forecast to be of Ag Equipment Intelligence to a to date, compared with $472 million down 15-20% for 2016, while turf and specified number of readers are and $1.4 billion, respectively, last year. utility equipment sales are expected available by contacting Lessiter Media Deere posted an operating margin for to be flat to up 5% for the year. at 262-777-2408.

6 Ag Equipment Intelligence/September/2016 Weakness Continues AUGUST U.S. UNIT RETAIL SALES in Ag Equipment Sales July August August Percent YTD YTD Percent Equipment 2016 Field 2016 2015 Change 2016 2015 Change North American large ag equipment Inventory sales continued to be weak dur- Farm Wheel Tractors-2WD ing August, with 4WD tractor sales decreasing 38.9% and combine sales Under 40 HP 10,805 8,918 21.2 93,484 84,182 11.0 71,738 dropping 17.1%. Both declines were 40-100 HP 4,768 4,800 –0.7 37,736 39,867 –5.3 37,110 somewhat better than July’s (4WD: –43.3%, combines: –23.2%), accord- 100 HP Plus 1,141 1,564 –27.0 12,520 16,510 –24.2 10,371 ing to Mircea (Mig) Dobre, senior Total-2WD 16,714 15,282 9.4 143,740 140,559 2.3 119,219 research analyst with Baird. Row- crop tractor sales declined 25.6% Total-4WD 83 160 –48.1 1,298 1,957 –33.7 695 year-over-year and mid-range tractor sales decreased 0.4% following July’s Total Tractors 16,797 15,442 8.8 145,038 142,516 1.8 119,914 –22.6% while inventories increased Combines 388 500 –22.4 2,600 3,337 –22.1 1,075 20% year-over-year. Dobre notes compact and mid-range tractor inventories continue to build on all-time highs. “August 2016 marked AUGUST CANADIAN UNIT RETAIL SALES the 31st month of large ag year-over- July August August Percent YTD YTD Percent year declines, though the decline mod- Equipment 2016 Field 2016 2015 Change 2016 2015 Change erated sequentially,” he said. Inventory U.S. and Canada large tractor Farm Wheel Tractors-2WD and combine retail sales decreased 24% year-over-year in August, up from Under 40 HP 795 882 –9.9 7,388 8,789 –15.9 9,308 the 27% decrease in July. U.S. sales decreased 28% year-over-year, while 40-100 HP 300 287 4.5 3,048 3,394 –10.2 4,511 Canadian sales dropped by 6%. 100 HP Plus 174 204 –14.7 2,222 2,874 –22.7 2,394 4WD tractor sales dropped 38.9% year-over-year in August vs. a 43.3% Total-2WD 1,269 1,373 –7.6 12,658 15,057 –15.9 16,213 decrease in July (U.S. –48.1%, Canada Total-4WD 19 7 171.4 495 533 –7.1 225 +171.4%). U.S. dealer inventories of 4WD tractors fell by 32.1% year-over- Total Tractors 1,288 1,380 –6.7 13,153 15,590 –15.6 16,438 year during July. August is typically a below-average month for 4WD tractor Combines 175 179 –2.2 994 1,117 –11.0 505 sales, accounting for 5.7% of annual sales the last 5 years. 2016 Combine sales declined, posting a U.S. UNIT RETAIL SALES OF 5 year 17.1% year-over-year decrease in August 2-4 WHEEL DRIVE TRACTORS & COMBINES average following July’s –23.2%. U.S. combine 30,000 inventories were 27.4% lower year-over- 28,000 year in July (vs. down 25.3% last month). Typically, August is an above-average 26,000 month for combine sales, accounting for 24,000 9.9% of annual sales the last 5 years. 22,000 Row-crop tractor sales were 20,000 down 25.6% year-over-year, similar to the 25.8% decrease in July. U.S. row- 18,000 crop tractor inventories increased 16,000 2.1% year-over-year in July vs. a 0.2% 14,000 decrease in June. August is usually a 12,000 below-average month for row- crop tractor sales, accounting for 6.5% of 10,000 annual sales over the last 5 years. 8,000 Mid-range tractor sales were essen- 6,000 tially flat in August, down 0.4% year-over- JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC year after a 22.6% drop last month. — Assn. of Equipment Manufacturers

Ag Equipment Intelligence/September/2016 7 Tillage, Seeder Sales Counters Pottinger’s Hay Tool Drop Off A significant increase in tillage equip- able downturn in earnings for farmers 86.5% of its revenues — €260.5 million ment and seeder sales helped offset and a marked reduction in invest- ($293 million) — outside Austria. a sizeable drop in demand for hay ment, especially in the grassland sec- Managers identify Canada — over- tools — at least in part — as Austrian tor,” notes Heinz Pottinger, managing seen since earlier year this by Andrew manufacturer Pottinger faced up to director. “Thanks to an innovative and Brown, the new general manager for market headwinds. balanced product range, we were able North America — among the top At €301 million, equivalent to to counter this with increased sales of five markets for growth in machine $338.5 million at current exchange tillage and seed drill technology.” sales during the financial year, after rates, the group recorded a 6% While hay tool sales declined Ukraine and ahead of France, Japan decline in revenues in its 2015-16 around 12% to account for 57% of and China. financial year compared with the group revenues, seed drill and cultiva- Pottinger itself has a new senior man- prior 12 months. tor sales recorded a 20% gain in sales agement team: Heinz Pottinger’s elder That compares with a healthy €320 for the year, representing around 28% brother Klaus has retired from the 145- million ($359.8 million) in 2014-15 of revenues. year old family owned business after and a record, at the time, €314 million In market terms, Europe’s two big- more than 30 years. He occupied the ($353 million) in 2013-14. gest ag machinery markets — Germany joint managing director’s role for the “The financial year 2015-16 was and France — remain Pottinger’s main past 25 years. Three new directors have overcast by a difficult market situa- export destinations, accounting for 19% been appointed to the board from with- tion, with negative development of and 13.5% of group turnover, respec- in the company to redistribute senior producer prices leading to a consider- tively. Overall, Pottinger generated management responsibilities. German Ag Exports Up in First Half; U.S. Exports Slip While German farm equipment manu- are finally seeing noticeable growth the perceptions of member manufac- facturers saw a slight uptick in exports in France again,” says Scherer. turers, of those that exported goods, during the first 6 months of 2016, U.S. ag This is the most important foreign 33% of respondents indicated falling machinery makers weren’t as fortunate. market for the German agricultural exports and 40% indicated stability.” German Exports Rise. According technology industry, with an annual January-June U.S. agricultural equip- to an Aug. 25 report from VDMA export rate of more than €1 billion. ment exports by major world regions Agricultural Machinery Assn. based in For the first 6 months of the year, compared to January-June 2015 were: Frankfurt, Germany, farm machinery and exports to France were up 25%. • Canada dropped 17%, for a total tractors worth €4.19 billion were manu- German manufactures are also see- $1.05 billion factured in Germany in the first half of ing a pick up in business with Russia, • Europe gained 12%, for a total 2016. This was up 1.5% compared to the “albeit from a very low level,” Scherer $933 million same period of 2015. “Consistently high says. He adds that the British market • Central America gained 12%, for a exports worth about €3 billion helped is especially troubling to the industry, total $620 million compensate for the still weak domes- because investments are still very low • Asia fell 38%, for a total $314 million tic economy,” says VDMA Managing due to the Brexit vote. • Australia/Oceania fell 26% for a Director Dr. Bernd Scherer. VDMA is forecasting a sales volume total $261 million The association emphasized that of €7 billion for 2016, which corre- • South America dropped 32%, for a this small increase in exports is in no sponds to a further fall off of 5%. total $249 million way considered a “real recovery.” U.S. Exports Fall. On Aug. 31, the • Africa decreased 17%, for a total According to VDMA, the German mar- Assn. of Equipment Manufacturers $109 million ket continues to experience “hard times.” reported that exports of U.S.-made agri- The top countries buying the most Sales fell by 14% to €1.08 billion in the cultural equipment at midyear 2016 U.S.-made agricultural machinery dur- first quarter. The association reports the dropped 12% overall compared to the ing the first half of 2016 (by dollar drop in milk prices was felt in Germany first half of 2015, for a total $3.54 bil- volume) included the following: more acutely than in other EU countries. lion shipped to global markets. 1. Canada: $1.05 billion, down 17% Results of a customer survey con- “Midyear 2016, U.S. agricultural 2. Mexico: $557 million, up 14% ducted by VDMA indicated that only equipment exports to the world con- 3. Australia: $234 million, down 26% 9% of German farmers are planning to tinue to decline, though lower than in 4. Germany: $145 million, up 10% invest in new machinery in the second previous quarters,” said AEM’s Benjamin 5. China: $128 million, down 55% half of the year. On a positive note, the Duyck, director of market intelligence. 6. France: $105 million, down 1% association reported the export busi- “Looking at the second quar- 7. Ukraine: $85 million, up 212% ness accounted for about 72% of sales ter results of our North American 8. Brazil: $79 million, down 37% in the first 6 months of 2016. Agricultural Equipment Industry 9. U.K.: $69 million, down 28% “After two years of recession, we Conditions Trends Survey, which tracks 10. Belgium: $67 million, down 29%

8 Ag Equipment Intelligence/September/2016