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Agricultural equipment market: biofuels boom is fertile ground for steel: experts predict interest in alternative fuels will bolster the farm, and farm equipment, markets for years to come.

Article Excerpt
The agricultural equipment market is on the cusp of a major turnaround, driven by strong commodity prices due in large part to burgeoning demand for corn-based ethanol and other biofuels. That translates into increased farm income, increased investment in farm equipment--and increased demand for steel.

Research is also under way to design new equipment to process other cellulosic or biomass materials, besides corn and grains, to be used as feedstock for the growing number of ethanol plants in the U.S. and abroad. To satisfy new demand for alternative fuels, farmers will likely need to upgrade their equipment for years to come. This is good news for steel suppliers, especially since many farmers will be looking to invest in larger, high horsepower tractors and combines, which are more steel-intensive.

"Ethanol will be a big push, but we haven't seen the results yet. Once it comes through, probably sometime next year, it will be big,' says Lourenco Goncalves, president and chief executive officer of Metals USA Inc., Houston.

Paul Labriola, president and chief executive officer of Robinson Steel Co. Inc., East Chicago, Ind., expects to see a small pickup in demand from the agricultural equipment sector even this year--"an improvement from the flat to slightly down demand in the last few years."

U.S. retail sales of agricultural equipment actually started this year a bit behind 2006, says Charlie O'Brien, vice president of agricultural services for the Association of Equipment Manufacturers in Milwaukee, Wis. "But in the last couple of months there has been a good uptick, bringing it close to where it was last year."

Through May, AEM reported farm tractor sales of 94,293 units, virtually unchanged from the first five months of 2006, with two-wheel-drive tractors down a slight 0.2 percent and four-wheel-drive tractors up 9.7 percent (see chart). Much of the weakness in two-wheel-drive tractors was in those with under 40 horsepower. A total of 1,928 self-propelled combines were sold in the first five months of 2007, up 5 percent from the like period in 2006.

"We are at the threshold of a change" says Eli Lustgarten, senior vice president of Longbow Securities in Cleveland, with demand being bolstered by the "tremendous step up of ethanol" and the resultant increase in commodity prices and farm income. Prices are sky high not just for corn, but for most agricultural products, he adds.

The turnaround has already begun, maintains Frank Manfredi, president of Manfredi & Associates, Mundelein, Ill., publisher of...

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