November 2, 2012

In order to meet growing food demand, Agco Corp. (AGCO) plans to boost manufacturing of crop-storage and livestock equipment in Brazil, China and Russia as the developing nations build infrastructure.

"Infrastructure is topic number one," Martin Richenhagen, chairman and chief executive officer of the Duluth, Georgia- based company, said. "We now need to develop our activities over there. That will help to support our growth ambitions."

Increasing overseas sales of silos, grain-drying and hog and poultry-raising equipment that Agco added through its US$940 million purchase of GSI Holdings Corp. in 2011 will help boost the unit's sales to US$1 billion in five years from an estimated US$700 million this year, Richenhagen said. About a quarter of Agco's sales came from North America in the quarter through September and more than half of GSI's revenues are from there, according to the company.

Agco next year may increase production of grain-storage and livestock equipment in either its Canoas or Mogi das Cruzes plants in Brazil, Richenhagen said. Assumption, Illinois-based GSI currently has an assembly plant in Sao Paolo. It may also expand capacity in one of its existing plants in China and is looking for a site in Russia, he said. The company also wants to expand sales in Africa. The expansion would come after GSI's sales slowed in North America as the worst drought in five decades lowers crop volumes and raises feed-grain prices, cutting demand for silos and equipment used to raise hogs and poultry.

Brazil is set to displace the US as the largest soy grower this year and increase plantings to meet increased demand from China, the biggest buyer, according to Rabobank International. The next harvest in Brazil "looks very promising," Andrew Beck, Agco's chief financial officer, said.

As plantings and consumption expand in developing countries the need for infrastructure from storage to roads to ports is increasing to avoid crop losses, Richenhagen said. China may boost soy imports by a third in the next three years, commodity trader Olam International Ltd. (OLAM) estimates.

Agco cut its forecast partly because of lower sales of storage and livestock products. Earnings excluding one- time items will be about U$5.20 a share in 2012, compared with a July projection of US$5.50 to US$5.75, Agco said. Sales will be US$9.8 billion to US$10 billion, down from US$10.1 billion to US$10.3 billion. The company also reported third-quarter net income that rose to US$94.5 million, or US$0.96 a share, from US$84.4 million, or US$0.87, a year earlier. That trailed the US$1.02 per-share average of 11 estimates. Sales climbed to US$2.3 billion from US$2.1 billion. Agco rose 3.2% to US$46.98 at the close in New York, the most since August 3. The shares have climbed 9.3% this year.