Equipment Spotlight Shining on Ag

Farmer Iron

News of optimism in world farm machinery demand is good news. And one company may be on a buying spree.

Published on: January 27, 2012

You hear a lot of news these days about the volatile global market. I know it's wreaking havoc on your risk management plan, but in farm equipment the news is pretty good. According to a release from the Association of Equipment Manufacturers, a meeting of key key global associations offered up some pretty good news this week.

AEM was involved in the annual meeting of the Agrievolution Economic Working Group held at the EIMA Agrimach exhibition New Delhi, India (it's not a show on my coverage list…yet). Turns out in 2011 the global volume of ag equipment sold rose to $98 billion and could increase another 5 to 8% this year, based on preliminary estimates from the meeting.

ADDING LINES: This Kubota L-Series machine is already getting some Kverneland siblings but news is that the company could be buying another equipment maker by fall.
ADDING LINES: This Kubota L-Series machine is already getting some Kverneland siblings but news is that the company could be buying another equipment maker by fall.

While prosperity in key developed country ag markets is responsible for some of this rise, it's the continued march to mechanization in developing countries that are also contributing to this healthy market. In the AEM release, Charlie O'Brien, AEM's vice president of the ag sector, notes that many newly industrialized countries are "working toward increased agricultural mechanization; in developed regions such as North America and Western Europe, the trend is toward more precision farming, and demand is for the latest technologies and innovations that improve operating efficiencies."

The organizer of Agrievolution - German VDMA Agricultural Machinery Association - compiled the overview include a look at U.S. markets.

One soft spot in the report is Europe. While the outlook for 2012 appears solid overall, there are some weaknesses, mostly in Western Europe. Eastern European countries, which continue to modernize their farm machinery, are a bright spot as sales prospects remain high.

Japan is also an area of growth for the world market, with the VDMA report showing as much as a 7% boost for the equipment market there. In China, growth could hit 10%, helped along by government support. In Brazil, the forecast is also for 10%, with the help of the national development bank's favorable credit approach. And finally, India keeps mechanizing as well, offering more sales for equipment.

Different markets need different sizes of equipment - no doubt a farmer in Brazil is looking for more than a land-holder in India. Across the board, however, there are sales opportunities for the industry.

For now, ag holds onto a position it has not seen in some time: a market bright spot where profits and input demands are solid. It's a nice feeling.

Buying spree?

Kubota Corp. has apparently staked its claim on Kverneland, gaining 79% share of that Norwegian farm equipment maker, but the company wants more. According to a Reuters report, Kubota is in talks to buy an "overseas farm equipment manufacturer" in a deal that could top $2.6 billion. The Reuters report says that Kubota President Yasuo Masumoto wants to close the deal by fall and this could be one of several acquisition targets.

Of course, since no specific company was named, analysts are already running a kind of "press pool" naming potential acquisition targets. Kubota Corp., which started as a foundry in 1890, owns the familiar Kubota Tractor line, and sells Kubota engines as well. According to the report, Kubota is aiming to generate as much as 80% of its sales outside Japan within the next five years, that number is currently below 50%.

As for acquisition targets? Among the names mentioned is Claas and Same Deutz-Fahr. In addition, there is a possibility that Kubota could acquire the South American brands owned by CNH Global or Agco. For now we won't speculate, we'll learn soon enough. But when times are good acquisitions can happen as companies with cash seek to expand their market share.

Kubota has done plenty to grow "organically" by increasing market share with its own product. Next logical step is to reach out and bring other brands into its stable. We'll strive to keep you posted.

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