Will the US farm economy be brought low by
drought-reduced yields, or will the boost to prices more than make up for lost
Agco warned over a potential setback to
agricultural equipment groups, at least, from the US drought even as it
unveiled a 50% jump in earnings, and raised expectations for its full-year
However, the caution contrasted with those from
many other agribusinesses, including fertilizer giant PotashCorp and crop trader
Bunge, which highlighted benefits from the squeeze on crop supplies.
Agco, the maker of Massey Ferguson and Fendt farm
equipment said that earnings for the April-to-June quarter hit $202.1m, or
$2.08 a share, up from $133.9m a year before,
The increase reflected, besides the acquisition of
silos group GSI, price rises, especially in North America and Europe, which
lifted revenues by 14.1% to $2.69bn.
Meanwhile, costs were constrained by "low levels"
of inflation in raw materials costs, reflecting less buoyant energy and metals
"Agco's strong execution in the second quarter
produced record earnings and operating margins of nearly 10%," Martin
Richenhagen, the group's chairman and chief executive, said.
However, Mr Richenhagen added that while North
American "farm economics remain healthy, the current drought conditions across
much of the US have added some uncertainty for farm equipment demand for the
remainder of 2012 in the region".
The statement clashed with more positive
assessments on Thursday of drought implications for agribusiness giants.
PotashCorp and agrichemicals giant Syngenta
forecast that higher crop prices would feed through into higher demand for crop
inputs, while Bunge said that market uncertainty would drive farmers and
consumers to larger crop traders.
And Maurice Taylor, chairman and chief executive of
tyres group Titan International, forecast a net benefit to growers from the
"I have been visiting farms in North Dakota, Minnesota,
Illinois, Michigan and Ohio and I believe the net income to farmers will be
equal or greater than the record last year," Mr Taylor, a former US
presidential hopeful, said.
"Why? [Farmers] were
expecting [a corn yield of] 185-200 bushels per acre but they will not get that
this year. They may get 145-150 if this heat continues with no rain.
"If you put the numbers to this at $5 a bushel for corn,
that is $1,000 per acre on yields of 200 bushels per acre. But at $8 a bushel
at 150 bushels per acre, that's $1,200 per acre."
The economics were "the same with soybeans", he said, adding
that growers with irrigation will see record financial results.
"Yes, there will be farmers who will lose their total crop,
but they most likely have crop insurance," said Mr Taylor, who ran,
unsuccessfully, for nomination as Republican presidential candidate in 1996.
However, Agco's assessment chimes with an
assessment by Creighton University that conditions in the US farm equipment
market have sunk to their lowest since the world recession.
A farm equipment index compiled by the
Nebraska-based university from 10 leading agricultural states, including
Illinois, Iowa and Kansas, fell to 46.1, the lowest since March 2009. Any
figure below 50.0 indicates contraction.
The US drought, the worst since 1956, was "putting
a dent" into the economies of farming areas, Creighton economist Ernie Goss
"Just as the region has benefited mightily from
very healthy farm income over the past few years, we are now detecting warning
signals of a significant economic reversal for rural areas.
"Farmers are clearly reducing their purchases of
agriculture equipment," he said, adding that "much weaker economic conditions
are slowing growth in farmland prices" too.