AGCO Corp. is citing the increasing weakness in European demand for farm machinery for lowering its sales outlook for the remainder of 2009. At the same time, John Deere says it's optimistic that growing demand for livestock to boost equipment sales by early 2010.

Both companies participated in JP Morgan’s Fourth Annual Diversified Industries Conference in New York City on September 16.

AGCO lowered its 2009 sales guidance to down 23-25% year-over-year from its earlier outlook, which was down 19-23% as the European ag equipment market has weakened significantly in the last 2 months.

The company said that European market has weakened, particularly in France and Germany, where premium equipment had held up well throughout the first half of the year, but is declining faster than expected in second half. The company suggested that ag equipment demand is being hurt by weaker crop prices and the dairy sector remains under pressure as milk prices remain weak.

As a result of this change in mix from high-horsepower equipment, AGCO expects margins to be under pressure in the region. Europe, Asia and the Middle East were 73% of EBIT in the second quarter of '09.

AGCO also expects the equipment mix in Brazil to weaken, with sales leaning toward low-end tractors. This is likely to put pressure on margins going forward in this region also, as South America accounted for 1% of EBIT in second quarter.

The company doesn’t expect a recovery in the larger horsepower equipment in the near-term, as increases in soybean planting is coming out of corn acres, and farmers still have highly leveraged balance sheets in the region.

Also participating in the conference, Deere management noted that the company faces tough year-over-year comparables for North American high-horsepower ag equipment sales for the next few quarters.

“Typically, Deere’s North American equipment sales are seasonally slower in the fall and winter,” says Ann Duignan, JP Morgan. “However, last fall, a significant amount of high-horsepower production, which was originally meant for the Russian market, was redirected into the North American market as the Russian market witnessed a sharp decline.

“As a result, the year-over-year comparisons will be tough for several months ahead. We expect production to remain weak sequentially over the next several quarters.”

Deere expects the 2010 outlook for livestock cash receipts of $131 billion, which be +9.5% compared to ‘09 as the company expects that the oversupply of protein will be corrected by the end of this year through herd liquidations.

“We don’t disagree, however, we believe that the widespread liquidation in the livestock sector will cause lower corn demand (about 5%) putting pressure on crop prices in 2010,” says Duignan.