Good afternoon. Thanks for joining. I'm joined by Andrew Sunderman, who is responsible for AGCO's Precision Ag business, and Greg Peterson, who runs investor relations at the company. Thanks for being here, guys.
Thanks.
Maybe to kick it off, let's start a bit with an overview on AGCO for the audience. Obviously, a legacy machinery company focused on the agricultural market on a global basis, but very much in a transition towards a much more tech-oriented offering. Let's start there, and then we'll dive in.
Great. Great. Thanks, Joe. Thanks for having us. Yeah, so in terms of 2023 sales, AGCO was a roughly $14 billion company. That makes us the largest pure-play ag equipment company, publicly traded, very diverse business, do a lot of business in Europe, very developed markets in Europe, North America and South America. AGCO is a relatively new company, founded in 1990. It was a product of over 30 acquisitions. And to Joe's point, one of the most important acquisitions was in 2017. That was when we bought Precision Planting, which today Precision Planting is arguably one of the most successful ag tech companies in the world.
And then, most recently, we're working on the acquisition of Trimble's ag business, and very excited about that, and that will be the largest ag tech acquisition ever. So working really hard to get that done. AGCO is focused, not surprisingly, in the large professional farm space. A lot of appetite for technology from the big farmers, and the good news is that for a lot of the products and services that we sell, the penetration rates are very low. So a lot of opportunities as we look forward. In terms of AGCO's strategic priorities, we have two. One is to outgrow the market by 4%-5% a year, and the other is to improve our mid-cycle margins, really to improve our margins through the cycle.
The first of those, outgrowing the market 4%-5% a year, we have three high-margin growth initiatives that we're focused on. The first is globalizing our premium technology brand, Fendt. It's historically done very well in Europe. We've brought that to both North and South America over the last few years and have a great growth trajectory and a lot of opportunity ahead of us with that brand. The second, and which we'll talk more about today, is our Precision Ag business. Last year in AGCO, that was a $750 million business. As we combine that with our upcoming Trimble acquisition, we have a target to grow that to a $2 billion business over the next five years. So a nice opportunity there.
And then the third growth vector for us is our parts business, which I say these are high-margin businesses. Our parts business is the highest margin part of our business, and we have nice opportunities, both with our dealers in terms of their parts business, but also, and more importantly, with our farmer customers. So doing a lot of things, a lot of investments to grow that, that part of our business. We do, as I mentioned, operate in three very distinct geographic regions, but the one underlying demand driver, if you will, is around farm income and commodity prices. And so we, we've come from a period in not long ago, in 2022, when we were at record levels for both commodity prices and farm income. So not surprisingly, very strong demand in our industry.
We've seen commodity prices move down over the last 12 months. We had very high levels of income for farmers in 2023. This year, we're projected to be closer to kind of long-term averages. The good news, however, is that the income levels over the last few years have set the farmers up very nicely. Their balance sheets are in really good shape, and as importantly, the land values, which is the most important asset on their balance sheet, are still very high. And then lastly, the residual values of the equipment on their farms, but also in our dealer networks, have really held up. So that's really currency, if you will, in terms of equipment moving around our industry.
Lastly, then, I just wanted to touch on a couple of long-term macro demand drivers for grain that make us optimistic that commodity prices are going to stay elevated and will be supportive for farmers. So things that a lot of you have heard of. So population growth, growing middle class with an appetite for protein, and then lastly, just the growth in biofuels. Not just ethanol, but things like sustainable aviation fuel and renewable diesel. So a lot of reasons to be optimistic. So, Joe, I'll maybe throw it back to you.
Yeah. No, thanks. Appreciate that, Greg. Andrew, maybe specifically for you, talk a little bit more about Precision Ag . Explain exactly what that means, what's the application, what's the use case, talk about the technology and how that's gonna drive the next stage of growth for AGCO.
Sure. Yeah. Thanks, Joe. So, you know, as we think about Precision Ag riculture, I really like to think about it, how do we make sure that we have inputs in our equipment in the right place, at the right time, and used in the right amount? This is at the core of Precision Ag riculture. And I would say AGCO's Precision Ag journey really started in the early 2010s, with the introduction of what we called our, at the time, our Fuse strategy. And this was about bringing or internalizing AGCO's development of Precision Ag technologies and making sure that we controlled our destiny in terms of the high margin and high growth potential that Precision Ag products were bringing to farmers in certain parts of the world at the time.
As we've looked at growing this, you know, Greg mentioned one of our key acquisitions, which was Precision Planting, back in 2017. And this really changed the trajectory of our Precision Ag business and how we go to market in this way. You know, over that time period, farmers have really looked to Precision Ag technologies to drive their profitability as well, looking at how do they increase yields and reduce waste or unneeded products that they apply to their fields, and Precision Ag is how they, how they did this. But what AGCO has done differently about our Precision Ag strategy is we've adopted what we call a retrofit-first approach. Now, I should clarify, our definition of retrofit means we bring a new capability to an existing set of machines, regardless of the make or brand that those machines come from.
And that's really important because it allows us to serve 100% of farmers in the marketplace. Regardless of whatever brand, regardless of whatever age of technology, or excuse me, of equipment they're using, we have a technology portfolio that we're able to drive value in their operation. Fast forward to today, Joe, and we looked at what was announced back in September with our joint venture between Trimble and AGCO. We further expand on this approach of being the mixed fleet player for Precision Ag products and autonomy solutions around the world.
Trimble brings a strong, strong track record of growth, being able to serve equipment types of more than 10,000 different equipment types around the world, and allows us a technology stack that's really critical in those future autonomous applications that we know farmers are asking for to solve labor problems, as well as to be more precise in how they use inputs in their farm. Precision Ag , for us, I would say AGCO is, has really taken an increased acceleration on this, and this joint venture between Trimble and AGCO will only further that and allow us to drive our success in the Precision Ag space.
you said something on the retrofit, and I've heard Eric Hansotia talk about this, and he used the comparison of AGCO being kind of the Android in the market, whereas Deere and CNH, CNH obviously acquired Raven, is kind of the, the iPhone in the market, right? Closed systems. How does that open up the TAM for AGCO, you guys being sort of an open architecture, whereas your two largest competitors are sort of closed systems and effectively don't give farmers options, whereas you guys are giving, you know, the, the farming world options?
Yeah, absolutely. So, you know, to use the analogy of the, you know, Android Auto or Apple CarPlay of the world, you know, we have farmers that use. You go on their operation, you show up and you'll see every color of machines. Color means a lot in the ag equipment space. And so you'll see equipment, both tractors, implements, combine sprayers, from all different makes from around the world. And those machines were never designed to work together in unity. And I think if we look at the automotive industry, you know, we show up at the rental car facility, and we don't know how to drive the Toyota versus the BMW, but we know a consistent way of using a Google Maps and a way of engaging with our phone calls on that display.
Agriculture is no different. So what our vision is, is that we're able to create that platform of technology products that can go on any make and any brand, that creates a consistent user experience, and has a consistent set of capabilities of unique features that can be used on any brand, regardless of equipment. You know, as I think about how that increases our addressable market opportunity, it's really significant. You know, some of our data suggests, based off of some recent surveys, that about 7% of farmers are interested in purchasing a new piece of equipment in any given year.
That means that there's 93% of customers that are not looking to purchase a new piece of equipment, but may be looking to do something better with the existing pieces of equipment that they already have in their operation. Through our Fendt Massey Ferguson brands, we're able to serve those 7% of customers looking to buy something new. But through our retrofit brands, both through Precision Planting and in the future, this joint venture between Trimble and AGCO, we're able to serve those customers. That target is really strong as we look at the years and decades of products that are still in use from farmers today, but the value of Precision Ag products that they're being, you know, required to adopt to maintain their profitability, and in some cases, meet local regulations from a chemical or pesticide usage perspective as well.
So I would say, you know, our market opportunity has now expanded in every aspect of the farming operation, with the one exception of land. Other than that, our market opportunity has now expanded to a much larger portion of the pie than what we had before.
What's feedback been from the ecosystem? Obviously, you know, within sort of ag, you've got farmers, you've got dealers, you've got other OEMs, and you serve other OEMs today with your existing offering. Presumably, you'll do that in a much greater way with the consolidated Trimble offering. What have you guys been hearing? What are people saying about the combination, the benefits of the transaction you announced?
So since the transaction was announced, I've spent much of my time traveling around, meeting with dealers, meeting with employees and team members from both Trimble and AGCO, as well as meeting with many of these OEM customers. I'll first start with the dealers, 'cause dealers in our business are the local extension of our teams, making sure that we're able to jointly serve farmers and deliver them the products and services that they need. And the feedback from dealers has been very, very positive. What our dealers, both from the Trimble Ag side and from the AGCO world, have seen a pure play technology company focused on agriculture. This is very unique in the market.
A lot of times we have, you know, equipment companies working with technology, or we have technology companies working to play in agriculture. In this case, we have a pure play player that's not only focused on Precision Ag , but focused on that full agriculture ecosystem, and that's exciting to them. For many of our Fendt, Massey Ferguson, Valtra dealers, for those that really look to grow their business from a Precision Ag portfolio, we'll be expanding our market coverage from this joint venture by leveraging those Fendt, Massey Ferguson, Valtra dealers. In certain markets, we expect upwards of 50% increase in our market coverage by combining these two strong dealer networks into one joint venture.
But also, as we think about our OEM customers, you know, AGCO has been serving a number of OEM customers over the past couple of years, and Trimble has a strong heritage of being a supplier of choice to OEMs. So as we talk to them, they look for more innovation from us. They look for the opportunity to grow at a scale that supports their businesses and their growth aspirations. And they're confident in the way that AGCO and both, AGCO and Trimble have both served them before, and they see a positive outlook for the two coming together under the context that we've started early on in this deal, which we refer to as better together. So I think all of our stakeholders have seen that.
Employees are excited, dealers are confident, and OEMs around the world see an opportunity for this joint venture to be their provider for Precision Ag technologies.
Greg, you mentioned $2 billion of precision ag-related revenue in the future. I think you guys have said 2028 is when you expect that. It's obviously the revenue from the Trimble transaction. It's your existing Precision Planting business and your Fuse business. Talk about the impact that'll have on overall AGCO, right? It's going to be a much bigger part of AGCO going forward. It's faster growing, and it's got a different margin profile. Sort of unpack what that looks like and how it changes the enterprise, you know, five years in the future.
Sure. You know, I touched on a couple of things earlier. One was outgrowing the industry, and the other was improving our margins. And so this transaction and especially growing our Precision Ag business, thankfully, does both. If you look at the Trimble acquisition, separately, for instance, before talking about the next five years of growth, it does somewhere around 60 or 70 basis points of margin improvement for our business. And then when you layer on the Trimble business, EBIT margins of close to 30% and our Precision Ag business internally of margins that are, you know, probably 2x our overall company average, you're looking at a very different business in terms of both growth trajectory, but also margin through the cycle for us.
You know, historically, you know, we've targeted 12% operating margins at mid-cycle. Last year, we did 12. We were slightly ahead of mid-cycle. This year, we're targeting 11%, but at an industry that's 95% of mid-cycle. So as we continue to progress with our margins and adding higher margin parts of our business, I talked about Fendt and parts, but Precision Ag will definitely move that margins. We have a analyst meeting that we'll do in December, and we'll talk about the aggressive margin targets that we have for our business beyond the 12. So we think both top line growing ahead of the industry and margins that are, you know, approaching mid-teens is a very different AGCO than what we've seen before.
You mentioned mid-cycle. Obviously, historically, ag is a cyclical industry. How do you think Precision Ag will change the nature of the cyclicality? Will it smooth out some of that historical cyclicality? And to maybe Andrew's point around this retrofit opportunity, this massive installed base of equipment, you know, in periods of time where there's maybe less farmer income or maybe, you know, there's a less likelihood for farmers to invest, they'll, you know, add on technology as opposed to buying a new piece of equipment. How do you think about that dynamic to reduce that sort of volatility through the cycle?
Yeah. So Joe, I think you hit it pretty spot on. I mean, you know, if we go back to those statistics I shared earlier about this 7% of customers and 93% that we look to target as well, you know, those are the customers that allow us to start to change what the growth profile looks like over time. You know, by having a set of products that even in areas where, or even in times when net farm income may not be as rich as they once were, our customers are still looking to drive improvements in their business. And so in times when input costs remain high, we're able to bring in these technologies that really help to reduce and maximize how they use those costs in their farm.
Precision Ag technologies are exactly how we look to customers or farmers have looked to us to do that. So, you know, I think it's a really nice complement to the strong existing portfolio of AGCO's equipment business and allow us to engage with customers, regardless of the industry cycles, with new products and new services along the way.
And, Joe, to add on to that, because of our retrofit approach, what we're really doing is incrementalizing investments for farmers. So even in periods when their income levels aren't as high, they have the ability to make an investment and get a payback in a lot of times, a year sometimes two years. But it makes these investments much more palatable, much more affordable through this Retrofit-first approach.
Yeah. Talk a little bit about the revenue model in Precision Ag . Some peers are out there with subscription models, which, you know, I know those are out in the market, and I wouldn't call them nascent, but early days on that. How do you guys think about the revenue model and monetization strategy relevant to AGCO?
So for us, there has to be an ROI for customers, first and foremost. Anytime we look at pricing and the new products that we develop, our key metric of success is that net farm improvement for farmers. You know, we think that if we can drive that positive profitability for them, that in turn, will be able to share in that profitability for us, and that's proven accurate for us so far. But as I think about other models that are out there, we, as well as others, have started to look at and have started working with different recurring revenue type models. You know, we have some existing products out there that leverage data services and data subscriptions that work off of this yearly recurring model.
Certainly within Trimble Ag and the intended joint venture, there are models around things that we call correction services and other sorts of connectivity products like that. But so to date, we've seen, you know, some pretty strong pushback from farmers in the marketplace around these recurring revenue-based models that are different than some of the things that they've experienced in other parts of their lives. You know, one of the things that we talk about is one of the values of our Fendt brand is it provides farmers with a fixed cost of ownership. For a period of time, they know what their costs are gonna be because of the warranty and the service and maintenance programs that we offer with the purchase of those new machines.
And that's, that's exciting for a farmer, because a farmer's whole life is about controlling variability in their operation. And what we've heard from them is that recurring revenue models are a sense of variability that creates some angst in their operation. So what we've looked to do a little bit different is, while it may not be considered a pure recurring revenue type approach, is we have looked to deploy software unlocks that can be purchased throughout the lifetime of the hardware, that even if a customer doesn't purchase it on day one with their new piece of machine or their new technology, that we can go back to them year after year and drive a new opportunity, a value for them, and a new margin opportunity for us.
This has become really, really important for us as we look at creating that stickiness for farmers and making sure that they stay in our court as the provider of their Precision Ag products, not only today, but for years to come. We are working in piloting some different recurring revenue type models in different markets to understand customer feedback and customer appreciation for those. And there's been pockets where we see great opportunity, but for the moment, we've worked to maintain really that one-time purchase and those recurring unlocks that customers can continue to purchase. So at the time that farmers are ready for them, we're there to help, you know, capitalize on that revenue opportunity.
But for the moment, we've got a model that we feel very strongly about in driving value for farmers and for AGCO.
Maybe one more question on the Trimble transaction. I assume you guys will be embedding the Trimble hardware in off the factory floor, product offering. And I presume, you know, AGCO is a holding company, you guys have some market-leading brands that, you know, are best-in-class in certain geographies. How will Trimble play within that ecosystem? Is Trimble hardware gonna be on every one of your product offerings? How do you think about that? Maybe sort of one, day one of close, and then a couple of years in the future.
Yeah. Well, Joe, one of the great things is actually Trimble is well known by AGCO today. Trimble has been a supplier for certain Precision Ag products to AGCO for the last 10 or so years. And so, most, or I would say all Fendt, Massey Ferguson, and Valtra machines, professional producer machines, they currently have Trimble Ag receivers as an option from our factory. So this is a known relationship, a known engagement between Trimble and AGCO over the many years. But as we look forward, the joint venture will be a source of many of the next- generation Precision Ag products for our Fendt, Massey Ferguson, and Valtra product lines.
So these will continue to be made available for farmers, not only in the retrofit market, but as well as through our factories, whether that's in our guidance systems or other technologies that allow for the interaction between, say, tractor and implement. One thing I'd also touch on is, you know, as we go back to that Android Auto type approach, you know, today there are ways in which there are some limited ways that farmers can connect certain parts of their equipment into a common ecosystem. But we will be able to take the most offensive approach in going out and not only providing a set of equipment with our Fendt, Massey Ferguson, and Valtra products, but take an offensive approach in having the best technology platform to connect the mixed fleets.
This would be a really strong value proposition for dealers and for the company of taking a different stance in how we connect that farm.
Greg, maybe we'll switch gears a bit. As part of the Trimble announcement, you guys announced Grain and Protein was under strategic review. Maybe explain the strategy around that, the refocusing of the portfolio, and then let's talk about sort of capital allocation. And I'll ask you a question on capital allocation once you hit the first one.
Sure, absolutely. So we purchased our Grain and Protein business a decade ago. And a great collection of assets. We've done, to your point, some restructuring recently. There's been some challenges. We've had a lot of business in China and with that market, some of the different things that's happened there, it's created challenges. The good news is that there's opportunities to continue to improve margin in that business. What we've discovered over the years is that there's not as much synergies with that part of our business as with the rest of our business. So we're taking this opportunity to take a look and see, you know, will our shareholders be better served if we reallocate that capital?
So we're looking really closely at that, and, you know, we'll have a decision on that, I would say, by mid-year for sure. And, if we do choose to monetize that, obviously then, that would be, you know, a way for us to pay for part of this Trimble transaction.
Yeah, maybe pulling on that thread a bit. Walk through the capital allocation framework and how you think about that. Historically, you guys have paid some special one-time dividends out to your shareholders. You've obviously repurchased some of your stock. You have a regular way dividend. Trimble Ag is going to elevate the balance sheet moderately. I think you guys have publicly said about, you know, 1.5x or 1.6 x, 1.7 x pro forma leverage. How do you think about capital allocation going forward? And if you do decide to divest the Grain and Protein business, how does that change the answer?
Sure. So our priority has been, and will continue to be, to invest in our technology and our business. And so we've spent, you know, a decade developing our tech stack. The Trimble acquisition is a big part of really bringing that, you know, to a more mature state. Going forward, we're going to continue to develop new products and new technology. Our R&D as a percent of sales has gotten to be about 4%, which is, you know, up about 60% over the last 5 years. So a big shift for us in terms of investment in our technology. Beyond that, you know, we're going to continue to invest in the productivity and the efficiency of our operations.
We've continued to automate our plants and to continue to work on efficiency there. We'll continue to do that. We, as you mentioned, have a regular quarterly dividend, which we've grown nicely over the last several years. We're yielding about 1% now with that, with that dividend. We also do periodic share repurchases. The last few years, we've centered on essentially offsetting the dilution from compensation plans. And then, with that truly excess cash, we've used that variable special dividend as a, as a vehicle to return the remainder of the cash to shareholders. And to your point, last year in 2023, that was a $5 special dividend, the year before, $4.50, and the year before that, $4.
Obviously, with a $2+ billion-dollar acquisition right in front of us, that special dividend, the board will talk about it, and if they decide to do it this year, would obviously be much smaller. But it's something that we will definitely consider again for this year. I think we'll continue to be very balanced in terms of investing in technology, but also in making returns to our shareholders.
Last question from me before I open up to the audience. Andrew, the transaction with Trimble is a joint venture, 85% ownership by AGCO, 15% by Trimble. A little different, maybe not what is normally, or custom, I should say, from an M&A standpoint. Talk a little bit about how you guys arrived at that answer, and then how will this JV be managed? How will it be operated? Let's fast forward five years, you know, where does Precision Planting sit within that? Where does Fuse sit? How do the different pieces of technology within AGCO, sort of merge together, if they do merge together?
Sure. Well, lots of good questions there, so keep me honest to make sure I address all of them. The first one, 85 and 15. You know, Trimble, Trimble Ag is just one part of a very impressive business that Trimble has. And so as we look at this joint venture, and I mentioned this idea of, you know, what does it look like for Trimble and Ag, could it be better together? Outside of just the Ag business alone, there were some key technology elements within Trimble that can serve and will serve the broader Ag ecosystem.
And so by maintaining this joint venture, we allow this joint venture to continue to leverage AGCO as a pure play agriculture player with great scale around the world, but also to continue to tap into and have access to some of these great technology elements that are present within the broader Trimble corporate ecosystem. That's really the construct of why a joint venture, whether that's things such as the core chips that are part of some ECUs and technology products, as well as, as we look at a more autonomous future in agriculture, we get to leverage the scale of both Trimble and AGCO through the use of a joint venture rather than a 100% acquisition.
As we think about how this business will be run, you know, this business will be a key part of AGCO's Precision Ag and Digital business , which consists of, as mentioned Precision Planting, Fuse, and some other tech core technology components of the AGCO ecosystem. It will be run, though, as a standalone business, leveraging certain parts of both Trimble and AGCO. Many of the Trimble Ag team members have great experience in the ag industry, driving a strong business there. They'll become key parts of the joint venture leadership team. AGCO has nominated who will become a lead for this business to announce as we move closer to the date of close.
That's been with the company for a number of years and played key parts in this transaction, as well as other parts of the Precision Ag business. So there will be a key role that this joint venture plays in serving farmers uniquely, serving OEMs and AGCO. And I think, Joe, the last part of the question that you asked was: How does this fit into the broader ecosystem? You know, we talked about one of the ways, which was being a technology provider for our Fendt, Massey Ferguson, and Valtra machines. There's also a great opportunity working alongside our existing Precision Planting brand. You know, I oftentimes describe, if you look at the farm, there's a great interplay between the machine and the implement.
You know, so if I were to put it this way, the power, the power unit, and the thing that's really performing the job in the farm and in the field, that's maybe the planter, the sprayer, the, the tillage tool, et cetera. And Trimble Ag in, in this joint venture has, have had a--will have a really strong play in making sure that, that power unit, that equipment portfolio has is the most capable as it possibly can be. Making sure it's in the right place, making sure it has the right task identified, making sure that it's reporting out on what's being done in the field. And Precision Planting will continue to have a strong play in making sure that the outcome of the field, whether the planting task, the spraying task, or any others, are really done absolutely to perfection.
By Trimble Ag and this joint venture paired with Precision Planting, as well, we really see a complement, not only in our business, but also exactly how it looks like for our farmer customers and their operations.
Terrific. We got seven minutes or so left. Any questions from the audience?
Are there any overlaps between the Precision Ag business that AGCO had and the joint venture, both in terms of your R&D priorities, as well as for your customers? Is there a transition ahead, and sort of how are you thinking about managing that transition for the customers?
Sure. I'd be happy to answer that. And it's a nice question because it really complements or highlights one of the great parts of this deal. And that as we look at the existing AGCO technology portfolio and what Trimble Ag has had, there's very minimal overlap between the two. You know, it goes back to where were the companies focused on? From our side, within AGCO, we were very much focused on the actual task or that implement with our Precision Planting products. And Trimble Ag was very focused on the positioning and the control of the large machines used in agriculture. And so where there are areas of minimal overlap, we're looking at what is the best way to go forward?
How do we best serve customers, knowing that customers in agriculture, whether it's in North America or Europe, there's some needs. So we will not leave any customer behind in that way. But to date, our focus has been on how do we leverage these to grow in our distribution approach and really leverage our scale in focusing on the next sort of product portfolio and needs in agriculture. So I hope that answers your question.
Thank you. And have you shared any milestones in terms of either development priorities? You know, is there equipment that you have to support over the next 12-18 months, or, you know, what kind of growth do you expect on the third-party, supported, you know, units, within the joint venture? That'd be great. Thank you.
So Greg, correct me if I'm wrong here, but, to date, we have not shared any of those key milestones, as we're still working through the customary regulatory closing of the deal. Right now, our key milestone that we've communicated is for our Precision Ag and digital properties to be $2 billion in revenue by the end of 2028. So that's what our teams are thinking about and what we're putting plans in place to do in achieving that milestone in a couple of years.
I guess when farmer sentiment is weak, it's kind of tough to do new equipment sales. But I guess with just like elsewhere in the economy, with this increased focus on cost, I guess, how can you drive, like, new initiatives to just be more effective of driving that cost-saving part of the model and just increasing that part of the funnel or that part of the sales channel during the point where the other side is weak?
So I don't want to oversimplify your question because there's a lot to it, but one of the things that we have found very effective to be for us is to view ourselves more as teachers rather than sellers of product. And so we have taken a very specific focus. You know, Greg mentioned, when we think about our development process, we target a 1-year payback in our Precision Ag products, two years at most. And so during our development process, not only are we working to develop and validate those products, but we're working to prove and to demonstrate the value proposition that we believe for the portfolio.
So we take that, we take that value proposition, we work to communicate it to our dealers and to our customers, but we also work to bring them in and work with us, where we can help to show them the benefits and what it might look like in their farm. Within AGCO, we operate, I believe it's four farms around the world. One of our largest farms being in the state of Illinois, and our newest farm being in the state of North Dakota. And we bring customers throughout the entire growing season to these farms and show and demonstrate different problems that they may encounter.
But in our farm in Illinois, we generally, on average, run about 120 different research trials, where we're showing what different changes and how they apply their seeds, or how they use different chemicals, or how they apply those, specifically, how the use of our products can help to benefit their operations. And that has really proven to to illustrate not only about what we see as being a profitability impact, but help to connect their operation and what they've experienced on a, on a given year, and how our products can actually solve those problems for them.
That's really helped to overcome that challenge of, you know, maybe lower farmer sentiment or maybe a little bit tighter financials on their balance sheets, with the desire to spend money on the things that actually have a monetary impact in their overall financials. Does that answer your question?
Sure. For payback, especially.
Short, short payback is a strong piece and being able to really illustrate that.
I guess, just to follow up on that question: in a perfect world, would you prefer to do this type of deal into a stronger farmer balance sheet and income situation, or a situation where the farmers are having, albeit mid-cycle, incomes, but falling incomes? What, what's preferential, just from a philosophical approach?
Let me start, and you can finish.
Yeah, sure.
Right. So I would definitely tell you that, and I think I touched on it earlier, farm income, the level of income, is the most highly correlated demand driver for us. And so, you know, if a farmer does have more income, they will be investing more. So I would absolutely tell you, we'd much prefer to buy things, invest in things when farmers have a lot of money. The flip side of that, though, is, and this is very different from any time in the past, and investors oftentimes try and compare this cycle to last cycle.
So I'll tell you, we're in a very different position from the standpoint of, we now have technology that helps farmers save money, improve yields, and meaningfully change their P&L, which is something we couldn't have told you during the last cycle. But used to be, it was about selling horsepower or fuel efficiency or those things.
Today, because we have, you know, our hands in, you know, saving them on chemicals, saving them on seed, and improving on yields, you know, there's reasons to think all the way through the crop cycle that, you know, these kind of technology investments are gonna pay off.
Maybe just to add to that, Greg, I'm very optimistic about this deal and what it can mean for farmers. You know, as I look at some of the things that have been a key part that we've rolled out as pillars of the deal thesis around growing the distribution network, increasing our market coverage, as well as the use of products through the broader Fendt, Massey Ferguson, and Valtra product portfolio, there's some very clear activities that we can take on, that we can execute early on and right out of the gate and return significant value to this deal. So, I'm looking forward to the opportunities we have as we get going.
I had a quick one. It's a slight change of pace, but Sam Altman just spoke, and I'm just curious. Industrial tech has been kind of at the forefront of machine learning for a long time and robotics equipment, but I'm curious if you've seen some shift in the AI landscape and how that actually could affect not just your business, but the industry moving forward.
Yeah. So, these types of technologies are actually very prevalent in our business today. One of the most visible ones is the need to reduce chemicals and using vision and artificial intelligence to detect crop from weed, and applying chemicals only at the required spot in the field rather than across the field. These are technologies that are just now making their way into the marketplace from us as well as others. Another one I'll draw your attention towards, that we've been working with for a number of years, is a product we call SmartFirmer.
It's a product that runs through the furrow in the field, and it's measuring and taking many data points, depending on the size of the planter, upwards of 1 million data points per second. These data points are then transferred into actions based off of the moisture, the nutrients, and whatnot in the field. And so, artificial intelligence and machine learning will be a key part of agriculture over the next coming years, and I would already say has found a strong place in it.
I see we're at the top of our allotted time. So, thank you, guys. Great to see you. Thanks for all the questions, and it'll be exciting to see the deal get closed here, hopefully soon.
Absolutely. Thanks, Joe.
Yeah. Thank you.