TRENDLINES
CHARLES YENGST
www.yengstassociates.com — cyengst@yengstassociates.com
Looks Like Better Times
Down On The Farm
CHARLES R. YENGST IS
PRESIDENT OF
YENGST ASSOCIATES,
WILTON, CONN.
Have you been checking out commodity prices lately? They are out of sight and farmers
are delighted. What a glorious thing to
happen so early in the year. Farm income, one of the items most watched
when projecting new tractor sales along
with other farm equipment like harvesting combines, should do quite well in
2011 even if the government cuts farm
spending to the bone for the year. That
is why the stock market is holding the
stocks of John Deere, CNH and AGCO
in such high esteem these days.
Right now, we are expecting farm income to hit near $82 billion in 2010, up
56% from the 2009 level, which is likely
one of the largest jumps for several decades. In 2011 we should see (at minimum) another 10% increase or more
and in 2012 continued growth — though
perhaps at a slower pace — is likely.
All of this improvement, which implies a
much better bottom line for farmers, is
good and points to continued growth in
equipment sales not just for 2011 but the
year or two afterwards, excluding some
unforeseen financial collapse or weather
anomaly, neither of which we see or hear
about from the experts in those areas.
The bellweather segment for ag manufacturers is large tractor sales. In 2009,
sales of the two-wheel tractors rated
over 100 hp were down about 13% from
the previous year. This past year, sales
are expected to reach roughly 30,900
units, up 15% from 2009. Now for 2011,
sales could jump another 10 to 15% to
roughly 35,000 units, which is a very
good market for these machines.
Looking at the four-wheel drive models
with the big tires and tracks, sales jumped
over 20% in 2010 over 2009 levels, and
we look for another 15% growth in 2011.
By 2012, sales of these very large tractors
should be in the range of 8500 to 9000
units, the highest level we have seen in 20
years. Big sales of big machines means
big profits for the large tractor suppliers.
Shifting gears away from the farm,
there is always a lot of speculation and
misunderstanding when two companies
plan to merge. Needless to say, the
Caterpillar purchase of Bucyrus International announced several months ago
spawned a lot of questions, particularly
more recently having to do with “
equipment overlap” and anti-trust, etc. There
is a small overlap in the two companies’
product lines, but only in large mining
trucks where Caterpillar is the dominant
supplier in the world.
The large mining trucks made by
Bucyrus overlap with the Caterpillar line
at the high end, high-capacity end of the
line. Bucyrus acquired its mining truck
line from Terex in early 2010 along with
the Terex hydraulic excavator and shovel line. The Bucyrus trucks do compete
with Caterpillar’s large mining trucks
and those made by Komatsu, Hitachi
and Liebherr. The mining shovels made
by Bucyrus (both hydraulically operated
and the electric cable shovels) do not
overlap with Caterpillar’s excavators.
In fact, the largest Caterpillar excavator model is smaller than the smallest
Bucyrus machines. In this case, we
have small- to medium-sized excavators versus large, gigantic excavators.
End of story on that product confusion.
As for selling mining machinery, Cat-
erpillar has been in the business for
decades, just like Bucyrus. The two
companies have not really competed for
business in the past and, in fact, have
been complimentary to each other for the
most part. The two go hand-in-hand. Put-
ting a large hauler supplier together with
a strong, well-respected mining shovel
manufacturer makes perfect sense and
should not be contested.
