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Tough time for ag firms

Poor U.S. corn crops expected to affect equipment sales

By: Martin Cash

Wednesday, Jul. 18, 2012 at 8:21 AM | Comments: 0

Mike Hutmacher / The Associated Press A field of corn withers under the intense heat north of Wichita, Kan., on Monday. (CP)

While farmers in the Steinbach region are frantically searching for bins to store the sky-high corn crop that has benefited from this summer's extra heat, the toll of too much heat and not enough moisture is mounting in the U.S. Midwest.

On Tuesday, analysts downgraded their rankings on agricultural-equipment manufacturers, including Winnipeg-based Ag Growth International, amid further evidence the U.S. corn crop will be smaller than was anticipated as recently as eight weeks ago, leaving farmers with less cash to buy machinery.

Robert Winslow, an analyst with National Bank Financial who covers Ag Growth, reported Tuesday the U.S. Department of Agriculture cut its forecast for the corn yield by 12 per cent, reducing the likelihood of a record harvest that had been forecast.

"With such production concerns, we submit corn-belt farmers will, at the margin, be less inclined to buy ag equipment in the coming quarters, including Ag Growth's higher-margin grain augers," Winslow said in a report.

Winslow lowered his 12-month target price on Ag Growth to $32.50 from $37.50. An Ag Growth spokesman was unavailable to comment.

In another report Tuesday, Ann Duignan, an analyst with J.P. Morgan, downgraded her target price for Deere & Co. of Moline, Ill., to $78 from $98.

Duignan wrote, "We are now forecasting a five per cent decline in tractor sales in North America in 2012 (from up five per cent) and an 11 per cent decline in combine sales (from a decline of one per cent). We now expect a five per cent decline in tractor sales and a flat year for combine sales in 2013."

Winnipeg-based Buhler Industries is the only Canadian manufacturer of tractors.

Adam Reid, Buhler's marketing manager, said, "It's going to be pretty rough in places like Kansas, Illinois and Indiana, where the heat has killed off some of the corn crop and we know that's going to have an impact on our business down there. We don't know how severe that is going to be."

He said there have not yet been any cancelled orders.

"But that does not mean there won't be any," Reid said. "We're keeping our eyes on that. It's probably going to get more competitive for the business that is out there."

He said the company is still optimistic about how things look in Western Canada.

While the U.S. crop is being badly hurt by the drought, the more northerly Prairie farmers may be on the verge of a bumper crop. And with grain prices up 40 per cent since June, that means more money in Canadian farmers' pockets to upgrade their equipment.

Paul Cunningham, president & CEO of Winnipeg-based WGI Westman Group Inc., which makes bins and all sorts of storage equipment, said business is booming.

"We almost always have one or two pockets of problems in Canada," he said. "But this year, we don't have any issue areas in Canada."

He said the problems in the United States create opportunities in other places because grain prices go up. "Those farmers with a crop will have more money to spend and will probably spend it," he said. "Those with good crops will more than likely want to store it and that creates storage opportunities for us."

Whereas Ag Growth generates more than 60 per cent of its revenue from the U.S. Midwest, privately owned WGI Westman only relies on the United States for 20 per cent of its sales.

André Granger, president and general manager of Westeel, another Winnipeg grain-bin manufacturer with significant market presence, also said he expects higher Canadian sales to offset lower sales in the U.S.

On Tuesday, Ag Growth International (AFN-T) shares were down $2.20 to $33.70, Buhler (BUI-T) closed unchanged at $5.49 and Deere & Co. (DE-N) was down 84 cents to $75.94. Vicwest Inc., which owns several businesses, including Westeel, makes a wide range of exterior building products for various sectors. Its shares closed unchanged at $8.90.

martin.cash@freepress.mb.ca

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