Farm equipment sector on rise

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This article was published 04/01/2018 (3011 days ago), so information in it may no longer be current.

The $1.2-billion sale of MacDon a couple of weeks ago to motor equipment parts maker Linamar Corp. may have been a signal of better days to come for the agricultural equipment market.

Winnipeg farm equipment maker Ag Growth International just raised $75 million on favourable terms, prompting at least one analyst to say now is the time for investors to get in on “this high-flyer,” despite Ag Growth’s stock slump over the past few months.

Winnipeg tractor maker Buhler Industries released year-end results last week, with close to a 14 per cent increase in revenue from the year before and a return to profitability (albeit slightly) after two years of losses. And Buhler officials, not known for casually touting company performance, are looking for an even better year next year.

Many seem to believe the cyclical recovery for the sector will really take hold in 2018.

“We believe the long-term growth fundamentals for the agriculture industry are very strong, given the growing and developing global population… the market is in the early stages of cyclical recovery,” Linamar CEO Linda Hasenfratz said after the MacDon acquisition.

In a report to investors on Ag Growth International’s closing of its new financing, Greg Colman, an analyst with National Bank Financial, said Linamar’s big investment in the ag equipment business “reinforces our positive-cycle stance.”

Commodity prices started to spike close to a decade ago, spurred by corn subsidies for ethanol production in the U.S. But since then, global supplies have increased, which, along with various weather-related issues, have brought prices back down to earth. (Corn prices are half what they were five years ago.)

Buhler revenues in 2017 are still a good 13 per cent below the peak of 2012, and Adam Reid, Buhler’s director of marketing, expects a slower rebound than was experienced a few years ago. But he is “absolutely” expecting even stronger growth this year compared to 2017.

“We’re on the way back to market peak,” Reid said. “But we are not seeing anything dramatic that leads us to indicate there will be a huge surge in demand. Just a return to a normal equipment cycle. There is nothing to indicate we will see corn prices jump to $7 in the foreseeable future, if at all.”

Colman and Paul Cunningham, CEO of Winnipeg-based Westman Group Inc. — a private company that owns grain-storage company Meridian Manufacturing Inc., among other companies in the agricultural sector — believe the U.S. market is likely about a year behind the Canadian recovery.

“But the Canadian market is solid, and we think it will continue to be strong,” Cunningham said.

Companies like Ag Growth, Buhler and MacDon are all active in the international markets, where there is pent-up demand, especially in the burgeoning production regions of Eastern Europe and South America.

Buhler, which is majority-owned by a Russian combine manufacturer, now manufacturers an older tractor model in Russia and also continues to increase market presences for its Winnipeg-made Versatile tractors in Russia, Ukraine and Kazakhstan.

Last year, Ag Growth made a strategic acquisition of a grain-handling-equipment manufacturer in Brazil and is using it as a stepping stone to increase its presence in that growing market.

Even though revenue was off earlier this year, the company is looking at double-digit growth in international commercial work — grain-handling ports and depots — to meet pent-up demand in Eastern Europe and South America, where the agricultural infrastructure is in much need of upgrading.

In a conference call with analysts after its third-quarter results in November, Ag Growth CEO Tim Close said, “Our commercial businesses have strong momentum. However, sales were slightly lower in the quarter, largely due to timing of projects.

“Commercial is strong globally. Our backlogs are at record levels. Quoting activity is at record levels. We are making progress in key initiatives… and remain positive in the continued growth of this division.”

martin.cash@freepress.mb.ca