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Tractor market weakness dents AgJunction prospects

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AgJunction dashed expectations of a rise in earnings this year, blaming "general weakness in the agriculture industry", evident in particularly in the large tractor and combine markets important for the group.

The US-based maker of satellite guidance and mapping technology, with operations in likes of soil analysis too, said that it would report a year-on-year decline in revenues and earnings both for the April-to-June quarter and for the whole of 2014.

Although investors had expected a small drop in AgJunction's performance this quarter, they had expected a recovery later in 2014 to drive full-year earnings to $3.26m, a rise of 23%.

AgJunction shares, which are listed in Toronto, tumbled 12.9% to Can$0.81, their lowest since May last year.

'General weakness'

Rick Heiniger, the group's chief executive, said last month that while the North American market had proven "soft" in the January-to-March quarter, AgJunction was "confident in our growth prospects as markets improve".

While North American sales fell by 32%, those in Europe soared 70%, with Mr Heiniger flagging in particular AgJunction's growth in sales direct to farm equipment manufacturers.

However, on Monday he warmed that "general weakness within the agriculture markets in the first quarter of 2014 has continued into the second [April-to-June] quarter, resulting in lower year-over-year sales volumes".

'Mood is less positive'

The comments come amid signs of weakened agricultural machinery markets in many countries, with orders undermined by prospects for lower profits for farms squeezed by broadly lower crop prices and higher costs for the likes of seeds and agrichemicals.

In the US, sales of combines and four-wheel drive tractors, in which satellite technology is frequently installed, fell by 8.2% and 7.0% respectively in the first four months of 2014, according to the Association of Equipment Manufacturers.

Canadian combine sales fell by 12.3%, and those of four-wheel drive tractors by 21.2%.

Meanwhile in Europe, "the overall mood is less positive than last year", the CEMA industry group said last week, highlighting forecasts for a contraction of 5% in Germany, the European Union's second-biggest grains producing country, and of up to 10% in top-ranked France.

Poland, the EU's third-biggest grains grower, and crisis-hit Ukraine will also see "considerably lower demand", the association said, although it added that demand in most European markets, including Belgium, Spain and the UK, was "stable at high levels".

European tractor registrations fell by about 1% in the first three months of 2014, "a trend that is expected to continue throughout the remainder of the year", CEMA said.

Deere caution

Farm equipment giant Deere & Co, the maker of John Deere machinery, has also warned over former Soviet Union market, cautioning over knock-on effects of the Ukraine crisis.

"Market conditions in the Commonwealth of Independent States have weakened and industry sales there are expected to be down significantly for the year," Deere said last month, warning of a "general slowing" of economic growth and "ongoing restriction of credit availability".

Russian sales of four-wheel-drive tractors have actually held up well, coming in flat for the first three months of 2014, according to industry group Rosagromash.

However, combine sales tumbled 30% to 741.

By Agrimoney.com

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