AGCO unfazed by challenges facing the farming sector

In its last quarterly earnings call, AGCO remained markedly bullish about the future of farming and its ability to cope with the current set of challenges.

The latest address to shareholders gave an air of a company that has adapted to the shortages and exasperations of war and plague, and is just carrying on doing business regardless.

Record crops

Eric Hansotia, chairman, president and chief executive of AGCO, noted that sales for the second quarter of 2022 were $2.9 billion, which represented a 2.3% increase over the same period last year.

As healthy as these figures sound, the explanation as to why they remain high may not be quite so reassuring.

Hansotia also pointed out that the company has had to introduce price increases to “combat rising material costs, higher logistics expenses, and other manufacturing inefficiencies”.

And it appears that it is these increases that are fueling the growth in turnover as much as any gain in volume of product.

Despite this, he remains optimistic in believing that “farm fundamentals remain favorable and are supporting healthy order boards that remain ahead of
last year’s level”.

AGCO sees profit in technology

Adding to the cheerful prospect is an expanding ‘precision ag’ portfolio. This, he reassured investors, “is contributing to strong end-market demand and robust growth in margin-rich businesses”.

AGCO sees high margins in digital technology, so we can expect more of it

Suggesting that the increasing incorporation of digital technology into its products, as well as gathering other digital enterprises under its wing, is proving to be profitable.

This view is reinforced when he reaffirmed the company’s commitment to digitalisation. “These results reinforce our plan to continue investing in our smart farming solutions and enhanced digital capabilities to support further growth and margin expansion.”

Farmers retain their spending power

Growth and margin expansion have to come from somewhere and there is no doubt that, from a global perspective, agriculture is doing very well at present.

Grain production is, we are told, forecast to be healthy in the major production regions and although prices may have dropped back slightly, “farm income estimates remain elevated and are expected to extend the strong end-market demand”.

Farming agricultural production
The company sees every reason to keep on farming, despite the increased costs

Altogether he is quite content that prospects are good, as it is his job to be when talking to the people backing his company.

One note of caution is the supply chain issue with constraints being put on the company’s ability to actually produce the goods.

The cyber attack of earlier this month was mentioned and it was suggested that the company was “fully operational within approximately two weeks”, leaving the question as to just how approximately that two weeks was, or even still is.

A happy AGCO

As with the earnings calls of all the large corporations, the company puts on its happiest face and declares that everything in the garden is rosy.

Yet the supply chain problems still linger and it will be the management of these issues which will probably dictate which companies prosper going forward.

However, the least of the problems would appear to be the state of farming itself. Yields have always fluctuated and so have prices, the level of one directly influencing the other, and both are in a good position AGCO was pleased to tell us.

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