Agco deal uncovers hidden corner of U.S. farm boom

Fri Dec 2, 2011 10:03pm GMT

Quotes

   

- * Farm equipment maker Agco finalizes deal to buy GSI

* Global grain storage sector grows 5-7 pct annually

* Bigger US corn crop needs more space

By Christine Stebbins

CHICAGO, Dec 2 (Reuters) - The boom times for U.S. agriculture in 2011 have focused on soaring land and crop prices, bumper harvests and biofuels, but a recent deal has spotlighted a quiet industry that's booming: grain storage.

Agco (AGCO.N), the world's third-largest farm equipment manufacturer, this week finalized its purchase of grain storage manufacturer GSI Holdings for $928 million.

Analysts estimate annual revenue of the global grain storage sector at $3.5 billion.

"It's historically grown above GDP as farmers have tried to maximize the potential yields of their crops, store on-site in hopes for better prices. So it has grown at a 5 to 7 percent growth rate," said Adam Fleck, a Morningstar analyst, who said he is initiating coverage of the sector after the Agco deal.

The U.S. farm economy is the healthiest it has been in years as record income is allowing farmers to pay off debt and buy land, machinery and facilities to store more crops.

Headquartered in Assumption, Illinois, GSI sells its products globally through more than 500 independent dealers.

"Together, we will give our customers even greater access to technology to help them be more productive and profitable," Agco chairman Martin Richenhagen said on Thursday.

GSI, which was privately held by New York-based Centerbridge Partners LP, says it is the world's largest maker of grain storage systems. But information on the industry, which includes U.S. brands like Brock, Sukup and Agri-Systems as well as European and Chinese makers, is closely held.

Agco, which sells its tractors, planters and harvesters worldwide, sees GSI as a co-marketing and sales partner for its farming customers at home and overseas.

GSI "is well-positioned to benefit from increases in global grain and food demand," Richenhagen said.

Analysts agree and are bullish on the sector.

"The growth potential of the industry, a lot of it is going to stem from emerging markets. South America is a great example

-- which is a large grain producing region," said Fleck. "Agco -- which is a large grain producing region," said Fleck. "Agco is looking at double-digit type growth in that region." In recent years some big investors have begun playing in the grain storage business. Omaha-based firm Gavilon

-- owned by Ospraie hedge fund, George Soros and others -- has -- owned by Ospraie hedge fund, George Soros and others -- has bought grain storage facilities from Oregon to Ontario, attracted by soaring crop demand, especially from the massive demand created for corn-based ethanol production.

U.S. grain storage capacity has expanded 12 percent, or more than 2 billion bushels, since 2005, coinciding with the jump in ethanol. (Graphic: link.reuters.com/byg45s)

Needs have included rail and storage for 200 ethanol plants which consume about 40 percent of the annual U.S. corn crop of more than 12 billion bushels. Other major row crops, including soybeans and wheat and sorghum, add another 5-6 billion bushels annually to permanent and temporary storage needs.

The top corn state of Iowa has led the charge.

"We are building new storage at a rate about 5 percent a year," said David Miller, director of research at the Iowa Farm Bureau. "That reflects both the shift to corn from beans and higher yields."

(Reporting by Christine Stebbins, graphic by Gavin Maguire; Editing by David Gregorio)

((christine.stebbins@thomsonreuters.com; +1 312-408-8720; Reuters Messaging:christine.stebbins.reuters.com@reuters.net))

(()) Keywords: USA GRAINS/STORAGE

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