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Deere to Massey Ferguson Boom Waning on Rates: Corporate Brazil

December 17, 2013

(To set an alert for Corporate Brazil: SALT BZCORP)

 

Dec. 17 (Bloomberg) -- Top farm-equipment makers from Deere & Co. to Agco Corp. expect demand in Brazil’s $10 billion market to drop in 2014 as rising borrowing costs and slumping crop prices thwart a boom that lifted sales to a record this year.

Deere, the maker of John Deere harrows and combines, sees sales in Brazil falling as much as 10 percent in 2014, country head Paulo Herrmann said in an interview. Agco, which manufactures Massey Ferguson tractors, estimates sales may drop at the same rate, South America Marketing Director Alfredo Jobke said from Canoas, in southern Brazil.

Central bankers in Brazil, the biggest exporter of soybeans and sugar, carried out the steepest rate increases among major economies this year to tame inflation. Rising costs to finance farm-machinery purchases in 2014 will follow a 40 percent plunge in international corn prices in the past year and an 18 percent decline for soybeans.

"We expect an adjustment after a very strong year," Herrmann said from Indaiatuba, Brazil. "Next year the stars won’t be so perfectly aligned."

Deere and Agco, the world’s largest and third-biggest crop- machinery makers, have a combined share of about 68 percent of the Brazilian market. Agco, based in Duluth, Georgia, is the biggest supplier in the country with about 47 percent of the market, while Moline, Illinois-based Deere has about 21 percent.

 

‘Market Adjustment’

 

"We had an outstanding year and we think we are going to have a small market adjustment after that," Agco’s Jobke said.

CNH Industrial NV, the maker of Iveco trucks and New Holland farm equipment that supplied about 25 percent of the tractors sold to Brazilian farmers last year, declined to comment in an e-mailed response to questions.

Agco shares climbed 30 percent in the past three years and those of Deere gained 8 percent, trailing the 44 percent increase in the Standard and Poor’s Midcap 400 Index. CNH shares have fallen 14 percent since they started trading in September.

CNH debuted on the New York Stock Exchange and Milan Exchange on Sept. 30 after Chairman Sergio Marchionne completed the merger of Turin, Italy-based Iveco producer Fiat Industrial with its CNH agricultural- and construction-equipment division. Fiat Industrial was spun off from carmaker Fiat SpA in 2011.

CNH fell 2.8 percent to $10.46 at 2:40 p.m. in New York. Deere dropped 0.6 percent to $88.32 and Agco lost 4.7 percent to $57.74.

 

Tractor Boom

 

The Brazilian farm-equipment boom in the past two years was fueled by a decline in borrowing costs to a record low before central bankers started raising rates. The Selic overnight rate rose to 10 percent last month from 7.25 percent in April as inflation quickened to 6.7 percent in June, the highest since October 2011. All-time-high soybean and corn prices at the end of 2012 increased farmers’ revenue.

Rising Brazilian sales helped Agco’s net income jump 34 percent from a year earlier to $126.2 million in the quarter ending Sept. 30, while Deere’s profit climbed 17 percent to $807 million in the same span.

Agco’s sales in South America increased 17 percent to $1.58 billion in the nine months through September, about twice the 8.7 percent growth rate for North America and more than three times the 5.4 percent expansion in Europe, company filings show.

 

Sales Jump

 

CNH’s sales volumes in Brazil jumped 39 percent this year through November, according to data from the National Vehicle Manufacturers Association, or Anfavea.

Before declining in 2014, total Brazilian tractor sales will probably reach a record of as many as 66,000 units this year, 18 percent higher than the 55,819 reported by Anfavea for 2012, Agco’s Jobke said. That follows 6.7 percent growth last year.

For 2014, Brazil is raising the subsidized interest rate for farm-machinery funding to as high as 6 percent from 3.5 percent this year. About 85 percent of purchases are financed by government-backed credit lines, Jobke said.

"Financing conditions are the main driver for next year," he said.

 

--With assistance from Tommaso Ebhardt in Milan. Editors: Carlos Caminada, Keith Gosman

 

To contact the reporter on this story: Gerson Freitas Jr. in São Paulo at gfreitasjr@bloomberg.net

 

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

 

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