Frans Rosenquist, who farms 4,000 acres of wheat, corn and soy beans plus 3,000 acres of peas for Green Giant, just bought his fourth $200,000, 480-horsepower tractor. The Minnesota farmer plunked down the cash because 2002 is looking like a good year to Rosenquist, thanks in part to the passage of the Farm Security and Rural Investment Act (known as "the farm bill"), which returns to a much more generous system of price supports and regulated cultivation -- similar to that which pulled the nation out of the Great Depression. "The government has put a safety net under us," Rosenquist says. The farm bill, though panned by some anti-subsidy groups, has been heralded as a savior to U.S. farmers. "This is the economic recovery package that rural and small-town America needs,'' says Sen. Tom Harkin (D-Iowa), Senate Agriculture Committee Chairman. Besides farmers, the big winners could be manufacturers of heavy-duty tractors, combines and other farm implements, an industry that has been in a slump for the past several years. A survey of agricultural-equipment manufacturers by the Association of Equipment Manufacturers (AEM) shows that the producers expect their customers to be eager to buy farm equipment during the next two years (See "A Brighter Future," below.). "This may turn into the golden age of farming," says Jim Seaver, co-founder of Agco Corp., and its senior vice president of worldwide sales and marketing. The farm bill is expected to cost $190 billion dollars over the next 10 years, raising the total spent on U.S. farm programs to nearly $600 billion. Among other important changes, the bill gives farmers the flexibility to update their subsidy formulas to reflect higher yields. The previous subsidy system penalized farmers for increased productivity. The new measure also includes a $2 billion initiative that encourages farmers to adopt better environmental practices -- more reason to buy new, high-tech, environmentally friendly equipment. But most important of all, the plan provides predictable income for farmers. Last year, U.S. net cash farm income reached a record $60 billion, but at least one-third of it came in the form of emergency government payments. Because farmers didn't know whether they would get the money or not, many held off on big purchases such as heavy-duty tractors. David Raso, a Salomon Smith Barney analyst for the farm-machinery sector, predicts freer spending in the next couple of years. "It's a much better paradigm." That's not the only good news. Farmers and -- by extension farm-equipment manufacturers -- also were gifted with a World Trade Organization (WTO) agreement last December that promises to stabilize trade with China. As part of the conditions under which China joined the WTO, it agreed to cut tariffs and open its markets to more efficient producers of wheat, corn and soybeans. The likeliest beneficiaries are U.S. grain farmers because they can produce these commodities at about half the cost that a Chinese farmer can -- despite enormous wage inequities. U.S. Agriculture Secretary Ann Veneman has estimated that American farmers could sell as much as $2.5 billion more a year to China and Taiwan as a result. Pat Westhoff, an economist with the Food and Agricultural Policy Research Institute at the University of Missouri at Columbia, thinks that estimate could be high, but he does foresee an increased bottom line that could turn into money for equipment. "The China deal is important -- it may not turn the economy on a dime -- but it should produce more money to buy machinery than farmers would have had otherwise," he says. Starting Out Slowly Despite positive signs, this year has not been a big winner so far for two of the three major U.S. tractor manufacturers -- industry behemoth Deere & Co. or No. 2 Case New Holland (CNH), created in 1999 by the merger of Case Corp. and New Holland. The 165-year-old, Moline, Ill.-based Deere had a rough year in 2001, reporting a $64 million loss, despite the fact that U.S. farm income was the highest ever, and the company had introduced 63 new models of farm machinery in a variety of categories. In the first six months of 2002, net sales were down $5 million at $6.509 billion compared with $6.514 billion for the same period in 2001. Robert W. Lane, chairman and CEO, blamed first-quarter losses on "too much inventory, receivables, plant and equipment and other assets -- certainly more than needed to serve our customers well." At French Fiat-owned CNH, the company had lower consolidated revenues the first half of 2002, $5.102 billion versus $5.143 billion in 2001. The company's net loss for the first six months of 2002 was $10 million compared with a net loss of $64 million in 2001, same period. Immediately following the merger that formed CNH two years ago, agricultural economists say, the company failed to make clear to farmers which product lines it would continue to support. Then Deere cut the amount that it would pay for trade-ins of CNH machinery, which further troubled farmers and undercut sales. "They could be great -- but how long are they going to struggle with internal aggregation?" asks Goldman Sachs & Co. farm-machinery analyst Joanna Shatney. Agco is the only one of the big three enjoying a good year so far. Duluth, Ga.-based Agco had net sales of $1.391 million for the first six months of this year compared with $1.191 for the first half of 2001. Shatney says the company's cost-cutting efforts, which include plant closings, are working. And she applauds a deal with Caterpillar Inc. to design, assemble and market Caterpillar's new MT Series of Challenger tractors. She says the agreement improves Agco's product line-up and she thinks the ability to sell through Caterpillar's dealer network is a coup. IT On The Farm All three of the companies are putting a lot of their eggs in the high-tech basket, with Deere leading the way. "We're not selling technology per se. We're selling solutions," says Douglas DeVries, senior vice president of marketing for North America, Asia and Australia. The solutions include making GPS-guidance (global positioning system) standard equipment. Combined with automated steering systems, the GPS technology guides working vehicles in consistent rows for tilling, planting and applying fertilizers. The most sophisticated systems keep the tractor from straying more than one centimeter in either direction, cutting waste to a minimum and saving on labor costs because a farmer who isn't doing the grueling driving himself can work longer hours. Other vehicle navigation options include:
- Systems that automatically turn a machine at the row end, reducing unproductive time a farmer spends aligning equipment for the next trip down the row.
- Remote-control guidance systems that allow an operator to be out of the cab while the machine handles dangerous or monotonous tasks on its own.
- Multi-vehicle controls that, for instance, allow a farmer to unload the contents of a moving combine into a driverless grain cart, then send it back to the storage silo using wireless line-of-sight controls.
- Chemical sprayers that change the ratio of chemicals from row to row depending on what's needed.
| Factors | 2002 | 2003 | 2004 |
| FINANCIAL | |||
| Credit availability | 92.1% | 92.1% | 81.6% |
| Interest rates | 92.1% | 71.1% | 52.6% |
| Government payments | 73.7% | 89.5% | 89.5% |
| Farm debt | 63.2% | 63.2% | 63.2% |
| Net farm income | 48.6% | 75.7% | 86.5% |
| Farm cash receipts | 39.5% | 57.9% | 68.4% |
| CROPS | |||
| Planted acreage | 52.9% | 61.8% | 67.6% |
| Grain exports | 42.9% | 61.8% | 76.5% |
| CROP PRICES | |||
| Wheat | 45.5% | 42.4% | 53.1% |
| Corn | 35.5% | 41.9% | 58.1% |
| Soybeans | 25.8% | 41.9% | 64.5% |
| Cotton | 7.4% | 22.2% | 40.7% |
| FARM EQUIPMENT | |||
| Replacement demand | 61.1% | 83.3% | 85.7% |
| Farmers attitude toward buying equipment | 48.6% | 91.9% | 91.9% |
| Prices of new equipment | 37.8% | 35.1% | 45.9% |
