AGCO CEO Sees 2025 as the Bottom of the Farm Slump | Bloomberg Interview

Partner article to CNH vs. AGCO (Part 3)

Click here to watch the full interview on Bloomberg

Interview Summary: 

AGCO's CEO anticipates 2025 as the bottom of the current farm industry slump, citing positive indicators despite a 2024 downturn. The CEO downplays tariff impacts on AGCO directly, but expresses concern for potential effects on crop demand and farmer profitability. AGCO's strategy to counter industry cycles centers on "smart farming" through advanced technology in machinery, aiming to boost output while minimizing input. Significant investments in R&D and strategic partnerships are driving this. The company is also focused on expanding its high-end Fendt line to gain market share in North and South America, emphasizing its technology and farmer satisfaction.

Full Transcript (slightly edited for clarity)

Interviewer:
What's your outlook? At the moment, is 2025 going to be the bottom?

Eric Hansotia, AGCO’s CEO:
Yeah, we expect ‘25 to be the bottom. Our whole industry went through a very significant downturn in 2024. This happens in our industry. It happened about a decade ago. There's always one year where there's a big correction — that was ‘20, ‘24. Oftentimes then, the industry somewhat hovers around that low point for a bit and then starts working its way back up. We watched two indicators. One is the Purdue index for North America and one is CEMA for Europe. Both of them are already starting to move up. That's usually a future predictor of demand that's coming down the pipe. So we think ‘25 is the bottom.

Interviewer:
I wonder how you expect President Trump to shake things up here. He has obviously a big take on tariffs. There's a lot of machinery coming in from Asia. On the other hand, crop demand out of Asia, crop demand in China is really important as well. So what are the changes that you see in the next administration?

Eric:
Couple of things. I would say, you know, the Trump administration has a lot of support from the U.S. farmer. A large portion of the U.S. farmers voted for Trump in this last election, as they did before. Trump has also historically been a supporter of agriculture as an industry. So those are both positives.

Additionally, Asia is not a huge market for the big farming equipment that we make. We really focus on high tech machines for very productive farmers as our target. And so Asia is not a huge market. We don't bring in a lot from China to the US. So, you know, in that regard there's some positives to look at and the issues that you raised are somewhat muted.

Interviewer:
So to that end, what do you see in terms of the aggregate impact? If you think about the community of farmers across the country, what is the biggest kind of headwind here? Do you think that there could be demand pressures elsewhere, notwithstanding the Trump administration's moves?

Eric:
Well, at the end of the day, the world still needs to eat a certain amount of green. So what happens in one market likely could shift demand to another market. We're a very global company, so it may, you know, maybe there is one less farmer benefitting from that demand, while another farmer like in South America or in Europe does.

Specifically to your question on North America. I think that the tariffs is probably the bigger question about what is the impact of follow-on tariffs to the demand of corn, soybeans, wheat — the primary products that drive farmer profitability. So that's the thing that we're watching for most closely. I would also say that the world doesn't like vacuums. They don't like uncertainty. So whatever change happens, farmers and we can manage around that. And so I think just getting clarity and certainty, and getting into the new environment is a good thing.

Interviewer:
Well, I want to talk about how you are navigating some of these headwinds, specifically at AGCO, because AGCO shares and your industry peers, they tend to be very closely tied to the industry cycle and the peaks and valleys that you have there. I know that you're working hard at AGCO to sort of divorce the share price from the cyclicality of the industry itself. If you could give us more detail on how you're actually trying to do that, that would certainly be helpful.

Eric:
Yeah. At the heart of our company, our vision is to be the trusted partner for industry-leading smart farming solutions. And essentially, what we say is smart farming is making a machine with sensors on it and onboard intelligence so that it can look at variations of the soil or variations of the crop to have the machine automatically do things for the farmer.

Essentially, think of an airplane being on autopilot mode, we want the machine to be in autopilot mode, handling tasks for the farmer. The reason for that is that the world needs more grain. The world needs more grain to feed more mouths, use more and biofuel, and have more meat in their diet, which is a multiplier for more green. So there's we need more output.

But society also wants less inputs, less fertilizer and chemical and herbicide and pesticide. The only way to solve that equation is technology, these smart machines. And so we have invested heavily in that. We've doubled our patent portfolio over the last five years. We've increased our engineering budget since I took over by 60%. We closed the biggest AgTech deal in the history of our industry this year, and we created a joint venture with a company called Trimble, a leader in GPS systems. All of that is to try and accelerate our ability to bring solutions to farmers to solve the toughest problems in agriculture. And we've got a lot of momentum in that direction. 2025 will be another big year with a lot of launches for machines that can do things for farmers.

Interviewer:
I'm actually surprised at the pop culture references, looking at Luke Bryan's Facebook page and he says, “The rain hit us in Ohio last night. Good thing we had our Fendt tractors here to pull out all of our gear”. And I know that you have spent time with Luke Bryan on the farm. What is your high-margin, higher-end line of products? You're hoping to take market share from Deere with those from the big spending farmers. How are you doing in that effort?

Speaker 2
You know, Fendt is the best machinery line in the marketplace. It's the best-of-the-best for the most demanding farmers. It's highest in technology, highest in quality, highest in operator comfort and has the best support network surrounding it. So we've been step-by-step working Fendt into the North American & South American market. It was historically more of a European brand. The last few years we've been bringing it to the other markets. We've been growing steadily from ‘21 to ‘23. We almost doubled the business and we're aiming to double it again. And the reason being that once farmers get to taste and experience the Fendt product line and the overall Fendt experience, they love it. It's very sticky and they don't like to go back.

So that's our mission. We have a great product line from planters & sprayers, tractors, combines, and then we measure that up with top-quality dealer support with our dealer organization. And we're trying to really bring this Fendt experience. The technology I talked about also comes to market and Fendt as our technology leading brand. So we have a tech business that serves directly to farmers in what we call “retrofit”, where we'll put it on any brand of equipment, regardless what they had and almost any age. But then we also have our Fendt business, which is our machines coming from our factories that bring the latest technology to the market.

Disclaimer: This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein or of any of the authors. To the best of the authors’ abilities and beliefs, all information contained herein is accurate and reliable. The authors may hold or be short any shares or derivative positions in any company discussed in this document at any time, and may benefit from any change in the valuation of any other companies, securities, or commodities discussed in this document. The content of this document is not intended to constitute individual investment advice, and are merely the personal views of the author which may be subject to change without notice. This is not a recommendation to buy or sell stocks, and readers are advised to consult with their financial advisor before taking any action pertaining to the contents of this document. The information contained in this document may include, or incorporate by reference, forward-looking statements, which would include any statements that are not statements of historical fact. Any or all forward-looking assumptions, expectations, projections, intentions or beliefs about future events may turn out to be wrong. These forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond the authors’ control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all securities, companies, and commodities discussed in this document and develop a stand-alone judgment of the relevant markets prior to making any investment decision.