Old farm tractors go high tech as AGCO tries to compete with Deere

Illinois farmer Leon Adams’ corn planter sits at the center of a strategy by AGCO Corp. to expand in the world of agricultural machinery dominated by Deere & Co.

The Deere 1770NT model was built in 2010 and painted in the company’s iconic green and yellow, but the high-tech attachments that actually insert seeds into the ground, 24 rows at a time, are built by AGCO’s Precision Planting brand.

AGCO is focusing on retrofitting used tractors — made by it, Deere or other manufacturers — as a broad plan to get its equipment on the farm. It’s offering souped-up gear to make tractors smarter, betting farmers are eager to upgrade to the latest technology while also saving on costs. In short: If it can’t beat Deere, join it.

“What we’re targeting is essentially the 93% of the customers that don’t buy new every year,” AGCO Chief Executive Officer Eric Hansotia said in an interview with Bloomberg last month at the Precision Planting headquarters in Tremont, Illinois.

Retrofitting existing tractors “allows a much lower price point for them to get that new-feature capability without having to change over the entire machine,” Hansotia said.

Farmers and their suppliers have been under pressure for months. Crop prices that soared during the Covid-19 pandemic and in the wake of Russia’s invasion of Ukraine have come crashing down with global grain supplies swelling. Prices for corn, the most widely grown US crop, recently fell to the lowest since 2020.

AGCO, whose tractor brands include Massey Ferguson and Fendt, is much smaller than the market leader Deere. The Duluth, Georgia-based company kicks off earnings for the sector on Tuesday, with analysts expecting 2023 sales of about $14.6 billion — up from $12.7 billion in 2022 but well below the $61.3 billion for Deere’s latest fiscal year.

As part of AGCO’s move to target the retrofitting market, it said in September it would purchase assets from Trimble Inc. for $2 billion to help integrate technology from other manufacturers into its computer systems.

Deere has launched its own retrofit kits that allow farmers to upgrade existing tractors.

Prior to joining AGCO, Hansotia spent over a decade at Deere. He now compares AGCO to Android, with technology compatible with other carriers, while Deere is more akin to Apple.

“They want to make the walls as high as they can and have a closed system that makes this environment easy for people once you’re in and hard for them to leave,” Hansotia said.

For the farmer Leon Adams, Deere’s equipment has always been “phenomenal” — at a premium price. He raises corn, soybeans, wheat and ornamental pumpkins on 5,200 acres in southern Illinois, several hours’ drive from Deere’s global headquarters in Moline.

Precision Planting has allowed him to build a “tricked out” Deere planter with implements including a “closing system” designed to help eliminate air pockets when seeds are planted, and a spraying system that allows for the application of two different crop chemicals.

Adams, 42 years old, first started farming in the 1990s, when about $150,000 was the cost for an average new machine. “Now, you’re looking at half a million dollars every time you turn around,” with some new machines costing over $1 million with added features.

“As the cost has increased, it makes more financial sense to look at one- or two-year-old machines,” Adams said.

— By Michael Hirtzer (Bloomberg)