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Silos group AGI flags 'signs of recovery' in US farmer spending

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Ag Growth International flagged a revival in spending by US farmers on crop storage equipment, amid some signs of recovery in the machinery market too, as the silos maker unveiled a return to the black.

The Canada-based group said that "early signs of recovery in demand appear to be forming" in sales to North American farmers.

In the first two months of 2017, "new orders have increased by over 30% to the prior year, and order backlogs are significantly higher than at the same time of 2016".

Ag Growth International, forecasting an, unspecified, rise in sales and underlying profits this year, added that "management is cautiously optimistic that recent activity is an indicator of a modest improvement in the North American Farm sector".

'Severe reduction in farmer income'

The comments follow two years of declining sales in the North American farm market, led by the softness in the US.

"The farm market in the US has experienced weakness in 2015 and 2016 as a significant drop in corn and soybean prices, without an immediate corresponding decrease in input costs, resulted in a severe reduction in farmer net income," AGI said.

And they come amid some hope of improvement in broader spending by farmers on farm equipment too, with Canadian tractor sales jumping 21% year on year in February, according to the Association of Equipment Manufacturers.

US farm income prospects

The Canada increase was led by a 25% surge in sales of four-wheel-drive tractors beloved of large crop enterprises – a market which has been particularly depressed amid crop price weakness.

In the US, while the four-wheel-drive tractor market remained in decline last month, overall tractor sales rose 12.8%, and the combine market rebounded by 29% - giving overall machinery sales, by vehicle, their best February since at least 2013, and one well above the five-year average.

The improvement – while only showing up in one month's data – contrasts with gloomy market outlooks from the likes of Agco and Deere & Co of full-year market contraction of 5-10%.

Deere has forecast net cash income for US farmers recovering a little bit this year, by $1.6bn to $93.5bn, but remaining well below the 2015 level of $104.7bn.

Back in the black

Winnipeg-based Ag Growth International reported earnings of Can$19.31m for 2016, compared with a loss of Can$25.23m a year before.

The turnaround reflected in part comparison with a 2015 in which results were blighted by the performance of now-sold operations including Mepu Oy.

A series of acquisitions - including fertilizer handling equipment group Yargus in North America, and South American grain bins group Entringer - also boosted 2016 results, adding some Can$39m to earnings before interest, tax, depreciation and amortisation (ebitda).

Excluding purchases, ebitda fell by 5.6% to Can$61.32m, on revenues down 11.3% at Can$310.7m.

"Adjusted ebitda benefited from a strong Canadian farm market and robust North American demand for commercial equipment, offset by weakness in the US farm market and a decrease in large international project sales," the group said.

By Mike Verdin

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