Agco, Deere and others have positive fundamentals.
Sterne, Agee & Leach
FOR CORN, THE U.S. Department of Agriculture's October report is supportive for and 2010/11 projected yields were revised downward.
Yield is now expected to be 154.3 bushels per acre from 155.8 bushels, which appears to be in-line with expectations. Carryout [surplus] was revised downward to 827 million bushels from 902 million in September and was lower than consensus of 851 million which could put further upward pressure on corn.
Stocks-to-use ratio is now at 6.2%, down from 6.7%, further indicating a fundamental bullish environment and underscoring the need for further production next year to meet increasing demand.
Global corn stocks are now at the second-tightest in the past 35 years. Strong corn auctions continue to occur in China as the government is now selling strategic reserves.
For soybeans, data is surprisingly bullish as ending stocks lowered to 185 million bushels from 265 million as yield revised to 43.9 bushels per acre from 44.4 bushels. 2010-2011 stocks-to-use ratio is now projected at 5.5%, versus prior 8%, as increased exports, primarily to China, increased total usage.
Delayed planting in South America (due to La Nina effect) could further create soybean-price inflation. Current U.S. soybean stocks are at a 20-day supply and likely to get tighter. The next update on Brazilian soybeans should be next week's release from Companhia Nacional de Abastecimento (CONAB) [Brazil's crop supply bureau].
For wheat, ending stocks have been revised down five million bushels to 848 million with the stocks-to-use ratio now 34.7% versus 34.9% which should be supportive for wheat in near-term. Global wheat supplies are projected slightly higher for 2010-2011 as higher world production offsets lower carry-in.
German tractor-registration data continues to be encouraging as year-over-year tractor registrations grew for the fourth month in a row as comparisons have become easier and demand has picked up during a typically slow seasonal period.
Overall registrations rose 56% on a comparable basis year-over-year in October versus 23% year-over-year in September. 100 horsepower-and-less tractors were up 49% year-over-year and over-100HP tractors were up 65%, indicating a solid mix.
This continues to be consistent with our belief that the European market is recovering following a sharp downturn, with the German market leading. Year-to-date registrations are down 7% compared to being down about 11% in September, slightly ahead of current company guidance of down 10%-to-15% for the year.
While the German market continues to recover, we are encouraged and view this as favorable for agriculture original equipment manufacturers (OEMs). Additionally, we are presently travelling through Europe visiting agricultural- and crane-equipment manufacturing facilities and will have an update next week.
We believe that fundamentals remain positive for Ag OEMs including Agco (ticker: AGCO) (rated at Buy), CNH Global (CNH) (rated at Neutral), Deere (DE) (rated at Buy) and Titan International (TWI) (rated at Buy).
With improving German tractor-registration data as well as the continued tight grain situation, we believe that Ag OEMs should continue to benefit.
-- Lawrence T. De Maria
-- Samuel H. Eisner
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