By: Rob Wertheimer
There’s been a lot of positive news on the ag cycle in recent weeks, and we’re looking at leading indicators and historical demand levels to see if the momentum should hold. Our basic conclusion is that consensus has pretty much modeled a return to normal by 2022. There may be a bit of upside to those forecasts…unlike most of industrials, it has been five years since ag had an upcycle year, and that gives good support for a real upcycle(versus a return up to normal) and near term indicators are positive. We still don’t subscribe to the view that the current market is a deep trough: a definite trough, yes, but not a truly depressed one. Further upside in the shares for AGCO in particular, but also for Deere, needs to come from margin, or from valuation holding in a genuine upcycle – possible given the aging fleet and purchase drivers in new tech.