One of my favorite themes is hiding in the open… when something is seemingly so obvious nobody sees it.
That’s the way I feel about AGCO AGCO 0.00%↑, the third largest manufacturer of farm equipment behind Deere and CNH Industrial. One of its best-known brands is Massey Ferguson.
All three are selling into a market that has been clobbered, resulting in a glut of inventory… of such things as tractors and combines.
Worse, as AGCO’s CFO said at the company’s investor day just last week, nobody knows where the bottom is as the farm economy continues to weaken. He went on to say that things are becoming “more challenging,” but because this isn’t Nvidia, nobody pays attention.
The company says it’s reassessing the situation and will have an update when it reports Q2 results later this month. Seems to be there’s a day reckoning coming. You can read my full piece here.
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That industry has a some big problems that are not generally discussed:
1) Farmers really hate the amount of vendor controls and subscription fees that are part of modern farm equipment. Basically, you don't buy it any more, you rent it. There is a big demand among smaller farmers for old Deere etc. gear which has no software.
2) That gear runs on diesel, and needs to transition to swappable battery packs and power supply systems. Diesel is on a long-term supply downramp.
3) China has a massive farm gear industry. They're going to make inroads.