www.ubs.com/investmentresearch This report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 16. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Global Research 6 July 2020 Ag Equipment Takeaways from our expert conference call with Machinery Pete on Used Ag Equipment Used Ag values have held up surprisingly well despite turbulence We recently hosted a call with Greg "Machinery Pete" Peterson to discuss the used ag equipment market. He noted that used values, counter to expectations, actually improved in Q1, as his index rose to 7.1 from 6.9 in Q4 (scale is 1-10, 6.0 is the baseline), & values have been ~flat in Q2 (whereas values usually slide). Prices were particularly strong in the 130 to 200-hp (8.0) & 200+ hp (up to 7.2 from 7) categories. Under 100-hp values were also strong in Q1 (7.8), but have declined the last two quarters. Combines were flat YoY at 6.6 (balanced). Greg noted that the increase in values has been driven by increased demand for equipment still under warranty (1-3 yrs old), & good-condition, 8-10 yr old equipment. Values of fair (or worse)-condition, 4-7 yr old equipment, on the other hand, have been falling. Key drivers: Machinery Pete noted that farmer need to replace equipment, and inventory on lots are low, particularly as dealers consolidate. Retail price increases also bring used values up. Downside risks: reduced gov't aid, bankruptcies; Upside: increase in crop prices Our expert noted that despite farmers' tight finances, they still invest in replacing equipment because they cannot afford downtime (and for tax benefits). He believes however, that given the disruptions to farm income the last couple of years, values would have suffered much more were it not for gov't farm support. Machinery Pete believes if there isn't a similar level of support this year (especially for dairy/livestock farmers), the market might face a downturn. He added that while bankruptcies have ticked up, farmers' balance sheets are strong & bankruptcy hasn't been a widespread issue, so the equipment has been easily absorbed. Conversely, if crop prices rise and/or China-trade issues are resolved, sales will boom, especially given the older age of fleets. Shifts in OEM & dealer attitudes, and new tech, have helped sustain pricing Machinery Pete noted that improved equipment flow has prevented supply gluts, keeping values in balance. OEMs have been much more disciplined in production recently than they had been in the past; they have trained buyers to expect machines to be built when orders come in, which has helped keep the market supply in balance. Further, dealers are now larger & better capitalized, & are using analytical tools, both of which enable them to view used as a profit source, as well as move on from their older used inventory more easily. Improved dealer-OEM communication has also allowed dealers to match inventories to demand (e.g. used/new mix) to prevent supply gluts. Equities Americas Industrial Steven Fisher, CFA Analyst steven.fisher@ubs.com +1-212-713 8634 Avinatan Jaroslawicz Associate Analyst avinatan.jaroslawicz@ubs.com +1 212 713-1405 Ag Equipment 6 July 2020 2 UBS Used Ag Equipment Call with Machinery Pete Host: Steven Fisher, UBS U.S. Machinery and Engineering & Construction Analyst Speaker: Mr. Greg Peterson, Founder, MachineryPete.com We present below the edited transcript from our recent call with Mr. Greg Peterson, Founder, MachineryPete.com. Minor grammatical changes that do not impact the meaning of content have been applied. The opinions expressed by Greg Peterson herein do not necessarily reflect the views and opinions of UBS. UBS accepts no responsibility for the accuracy, reliability or completeness of the information and will not be liable either directly or indirectly for any loss or damage arising out of the use of this information or any part thereof. May 19th, 2020 2:00 PM ET Steve: Good morning and good afternoon. I’m Steve Fisher, UBS Machinery and E&C Analyst. Thanks for dialing in. The topic today is the trends and the outlook for used farm equipment. Before we get into the details of the call, I want to let people know that there are slides for today’s call, and we did not send them out in advance. If you would like the slides, please send me an email now at steven.fisher@ubs.com, and you’ll get the slides automatically. The key is to send the email with the subject "slides". So, again, just send me an email with the subject "slides", and you will get them automatically. As we said, the topic today is the outlook for used farm equipment. We are really lucky to have with us Mr. Greg Peterson, the one and only Machinery Pete himself. We’ve k...
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