Green Shoots
SECTOR REVIEW
The Outlook For Global Agriculture and Farm
Equipment Demand
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The farm equipment market: an oligopoly. The global farm equipment market
remains dominated by three players: DE, AGCO, and CNH. Each have their
own product and regional advantages as well as gaps that need to be filled.
Nevertheless, the dealer network remains a key competitive advantage and
is critical to being a market leader. On the positive and unlike the
construction equipment or truck markets, we see little threat or any
aggressive pushes from players in the emerging markets.
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The worst is likely over in Brazil. Government support for the farm sector in
the form of credit coupled with higher commodity prices and declining input
costs (around 30%) should support a recovery for farm equipment in 2010.
The government funding passed in late June was R$108 billion and at the
high end of expectations. Furthermore, the mix is expected to be heavily
weighted toward high-horsepower tractors, which suggests a favorable
impact on mix for farm equipment players.
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Nothing runs like a Deere. DE remains the most profitable farm equipment
player, with average margins 3 points higher than those of AGCO and CNH.
DE’s ROIC also trumps the competition. We believe this speaks to DE’s
increased focus on operations, including SVA and OROA and a diverse
business model. AGCO has the most potential to improve, given its history
of being an acquisitive company and its later focus on six sigma and lean
operations.
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A closer look at AGCO in Brazil. This report provides a close look at AGCO’s
Brazil operations from our recent trip. In summary, AGCO should benefit
from long-term secular growth opportunities as the number one tractor
producer coupled with a superior dealer network. Nevertheless, larger
opportunities exist within combines, sugarcane harvesters, and sprayers,
which are smaller in volume but provide above average aftermarket
opportunities.
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Stocks attractive. We continue to like Outperform-rated names DE (target
price $56) and AGCO (target price $34), reflecting long-term secular growth
opportunities in farm equipment while trading at attractive multiples (12.5
times our 2010 EPS estimate versus the broader machinery group at 20). In
the near term, we believe DE remains compelling on a risk-reward basis,
reflecting recent underperformance (up 11% year to date versus AG up
34%), potential recovery on the C&F business in late 2010, and strong
balance sheet (hopeful management revisits share repurchase in 2010).

Table of Contents
Investment Summary 3
The Big Three In Farm Equipment 4
Stock Performance 7
Global Drivers 10
The Important Markets 13
Agriculture in the United States 16
Agriculture in South America 37
AGCO in Brazil 47
Agriculture in Europe 50
Appendix 54