Okay. Thanks everyone. We're moving along here. Next up, we have the team from AGCO, who's been great supporters of this conference over the years, and we appreciate that. Again, you guys being here. To my left, Damon Audia is the CFO, and then Greg Peterson from IR. Welcome, guys. Good morning.
Thank you.
Maybe we just as a way to get the dialogue going, I'll, I'm curious, Damon, as you think about, you know, relatively, certainly, you know, newer to AGCO and, as well as the ag equipment space, just your overall perceptions as you know, have had some time to kind of settle in, just the competitive dynamics, just the overall market structure, your initial impressions on that, and then AGCO's spot in the market?
Yeah. Well, maybe, I mean, I'll start with AGCO, then I'll move more to the macro or the market backdrop. Yeah, I've been fortunate in my 7.5 months here, I've been able to travel the world quite a bit, see a lot of our factories, talk to some of our dealers, talk to some of our farmers. You know, I've spent almost 30 years in industrial companies, so I've been through a lot of factories, and I've seen what good factories look like, and I've seen what the more challenged factories have looked like. You know, inside, outside, I was very pleasantly surprised with what I saw with AGCO.
The level of investment they've done to modernize, keep the facility sort of, pro-producing quite well and very efficient, was a pleasant surprise for me. I think the other thing, as I walked the floors with these plant managers, you know, very clear focus on safety, which again, ultimately translates to more value and a better performing company, but more importantly, a focus on continuous improvement. Today, we're not getting it. Supply chains creating disruptions. As you would expect, things are not efficient. As I talk to them, they've identified areas that when things normalize, we can get better, we can get faster. You know, that's hard to teach in a lot of companies. I would say it's very common within the AGCO facilities, a real continuous improvement mindset.
you know, that's part of our growth or our profitability improvement plan, is as supply chain normalizes, we'll see that drop to the bottom line. To me, that was a pleasant surprise. I think the other thing that I've been very pleased with is the power of our brands. I knew about Precision Planting coming in. When I think about the unique OEM-agnostic retrofit approach, to me that's a game changer. It's a differentiator for us versus any other OEM. When you talk to the farmers and their ability to do smaller investments to see that return much quicker, we talk about a 1 year-2 year investment. You're not asking them to buy a brand-new planter at $450,000, but they can do the modules and they can see the payback.
To me, that was something I really didn't fully appreciate coming into AGCO, is how unique that retrofit and OEM-agnostic retrofit approach was for precision. That was great. I would tell you Fendt, I knew the Fendt brand coming in, had spent a lot of time in Europe, so understood that. When I had never been in a Fendt tractor. When you get in the Fendt tractor, you look at the technology, the ease of use, you look at what it does from a transmission, lower idling, fuel savings for the farmers, those are significant. You see the success of Fendt in South America. You hear us talk about the success of Fendt coming here in North America. To me, that was even better than what I expected coming in.
Been very pleased with everything I see, the opportunity to grow. As we've talked about it to our investors, I see the path to that, and we'll probably talk about that more. The farmers, it's been a good couple years, right? Their profitability is up. 2022 was a record year for here in the U.S. You know, they're continuing to invest. You look at our order boards for our high horsepower tractors, you know, that's extended here to the third quarter from the North America and Europe. Grain prices have stayed relatively stable, off the peak a little bit. If you look at the forecast, I think corn is probably around $6 at the end of this year. Still very favorable economics for the farmers.
Of course, you know, allowing them to continue to reinvest in the business. That's being fed by a very strong macro backdrop, right? There's not enough grain in the world today. stocks-to-use ratios are historically low levels right now. You look at what's going on with the conflict in Ukraine, which produces or used to produce about 13% of the world's calories. You know, that's been constrained, forcing other countries like the U.S, like Brazil, to continue to increase their input or their output. You know, Brazil is exporting more this year than they did last year, forecasted to increase. All of these lending themselves to strong, to a strong macro backdrop.
You layer on the technology of what we're bringing with our products, you know, it lends itself to a strong order board into 2023, and as we said, you know, likely into 2024 right now.
Yeah, got it. You mentioned you hit on supply chain earlier. As you think about the outlook for the years, I think growth production hours, 3%-5%. Where are the, you know, for that, the answer could change day to day.
Right.
Kind of your visibility levels there. Are there certain parts of the world where maybe you're seeing, you know, an easing or just kinda take us through?
Yeah.
-there.
We're forecasting 3%- 5% increased production hours year-over-year. That's a global comment. I would tell you it's gonna be driven by the supply chain. Things are getting better. We've seen that in the third quarter. We saw it again in the fourth quarter getting better. Europe performed very well in the fourth quarter. South America performed very well. Our challenge of those other major regions was North America. If I think about if I just look at my fourth quarter run rate, where is the biggest opportunity? I think the supply chain getting better in the U.S. is presenting the most opportunity. Again, you know, for us, as we see the supply chain getting stronger around the world, we're gonna see that growth coming out of Europe. We're gonna see improvements in South America.
Again, it's gonna fluctuate depending on the supplier. That's an issue. What we've said is we don't see the supply chain getting back to normal in 2023. Our outlook for the year does embed a certain level of inefficiency better than where we were in 2022, but not back to normal at by the end of 2023 at this stage.
Yeah, I think if you would have said Europe performed better than expected in the fourth quarter, you know, early part of or middle part of 2022, the people probably thought you were crazy, right?
Yep.
Just given all the potential risk there, I mean, how has that played out from a obviously a more mild winter has helped from an energy perspective?
Yeah. A lot of, you know, six, five, six months ago, lots of questions about the energy availability cost. Obviously, the cost of utilities went through the roof here. You know, for us, the cost is not the big issue. It was about 1% of our cost of goods sold, so not a big driver for us. Availability was a bigger challenge. We took a lot of proactive steps in our factories to reduce our risk, bringing in wood fire, wood fire sort of furnaces, shifting to electricity where we could, trying to make sure that we were as independent or as, you know, reduce our dependency as much as possible. The bigger challenge for us was the supply base.
We buy a lot of components, a lot of parts, so our sourcing team spent a lot of time last year really working with suppliers, trying to make sure we understood where the alternatives were. If a supplier had multiple factories, making sure that if they were outside of the European area, we had access to that capacity. If we were dual sourced, understanding who and where, and then also working on them with their continuity plans and what they are gonna do if something was to happen. You know, again, knock on wood, we didn't see any challenges this year. We feel like we've taken as many proactive steps as possible to reduce the risk. It looks like again from the storage, we'll get through this winter, and then we'll sort of see how things pan out a year from now.
We feel like we're in good shape within our AGCO facilities and trying to do as much as we could to reduce some, our risk with the supply base.
Got it. Got it. If we could shift gears a bit, as you guys have outlined at the Investor Day back in December, this notion of, okay, we can drive 150 basis points of margin improvement. There's three kind of key pillars within that. Maybe we break those up a bit, starting with precision in terms of the, you know, the target to get that to $1 billion b y 2025. I think, you know, one of the questions I have is that you mentioned earlier that we've been in a favorable backdrop from a farmer profitability standpoint the past few years. I'm just curious, as you think about precision, how do you expect that particular piece to behave in the event we don't see a continuation in terms of farmer profitability improving?
Yeah.
Do you think that, I mean, you could argue maybe that that could be almost countercyclical in that maybe farmers invest more to bring down their costs or improve yields in tougher times?
Yeah.
just curious if the team is hard to prove or disprove at this point?
Yeah, no, it's. I'll come to precision in a minute. Let's just make sure we set the tone for where we're going on our margin target, 'cause it's a big step up, right? If you think about what we did last year, we did 10.3% was our operating margin. We were above mid-cycle. You know, we would tell you direction 107%. When we gave you our 12% target, that was at a mid-cycle number. When you bring that 10.3% down to mid-cycle, that's closer to about 9.3
We're going to go up 300 basis points between 2022- 2026. A 3% improvement. Half of that is going to come from our 3 growth engines. Half of it's going to come from parts, precision ag growth and Fendt. Those are 3. Those 3 are going to help us outpace the market by 4%-5%. The other half is coming from cost improvements in our Grain & Protein business.
Our Massey Ferguson business and then more operational efficiency. We see sort of two profitability improvement plans, one top line growth, one operationally cost focus
If I go into your specific question on precision, you're right. What we've said is we look at some of our growth drivers, the shared growth we see in Fendt, the single digit, high single-digit part growth, and precision, we expect them to be less cyclical, maybe even non-cyclical. I look at precision specifically, as I said, the thing that surprised me was this OEM-agnostic retrofit approach.
As we think about the economic cycles, as farmers see their commodity costs come down, their net income dropping, precision offers them the opportunity to be much smaller type of investments while still improving their yield, still reducing their input costs. Again, if you think about that farmer who's already using a planter, he or she has the ability to implement only a portion on that planter. They can buy a couple rows worth of the Precision Planting. They can buy different modules, they can buy the SmartFirmer. They can buy the things that help close the furrow. Each piece to see or understand what sort of yield improvement it can help them with or input reductions in their costs.
For us, we know that even during those challenging times, the farmers are gonna wanna continue to look for better yield or better productivity, reduce their input costs. We see that precision side of the house really playing out well. Again, because it's OEM-agnostic, we see that opportunity, that addressable market being larger than your traditional new equipment. We see it sort of working through the cycle. I don't know if it'll be you know, counter-cycle, but we definitely don't see it flexing the way the new equipment would during a downturn.
Got it. On the retrofit side, starting with planters, where do you plan to take that?
You know, they really have broadened the horizon across the crop cycle now. Precision Planting started in the planting cycle, and a lot of work being done continuing to improve that. If you look at some of the things we've announced on the Precision Planting side, we're also into the targeted spraying. Really focusing on that, trying to improve, you know, the spraying technology. With our Headsight acquisition, we're on the harvesting side as well. Equally important, maybe not directly to the farmer, is the Radicle Agronomics, the soil testing side. Again, every farmer goes through a traditional process where he or she tests their soil, they send it out to a third-party lab, they get the results back, and it helps them influence where they plant.
With our Radicle Agronomics, they're getting much more accurate data, and they're getting it faster. They can do more samples, get the information a lot faster, more real-time, and they can adjust their planting in a much faster path than what they would have done traditionally. That's not gonna be sold to them directly, but more to these third parties, consultants or agronomists who are working on the field supporting the farmers. Again, another way for these farmers to help improve their yield 'cause they're getting a lot more information, a lot more accurately and a lot quicker as they're getting ready for the planting cycle. Precision's working across the crop cycle now.
All of these things with the idea of helping the farmer become more productive, improve his or her yield, reduce their input costs with the mindset of a 1 year- 2 year payback. That's sort of the goal when we talk to them is, you know, 1 year- 2 years.
Within Precision and Fuse or just the whole sphere of your Precision business, you over time have grown the AGCO content, and, you know, obviously outsourcing less of that technology to third parties. Is there a way to quantify the margin dynamics of as you've done that?
Yeah. I mean, we, you know, we've always had good strategic partners with some of them, many of some of them who we purchased, you know, as part of our integration of our tech stack. You know, I would tell you there's, you know, it's been a modest margin enhancement to us.
Okay.
At the end of the day, we're really working back on the value we can bring the farmer, and it's resulting in strong margins to us. It's, you know, it's been a positive but not a material driver of the overall profitability of the Precision group.
Got it. You mentioned your impressions of Fendt being over in Germany and seeing the factory. We've heard from North American dealers really going back over the past several years. Just a lot of the product improvements that have been made have been very well received. I think that Gold Star program gets a lot of high marks from dealers. But, you know, early days in terms of the penetration here and obviously you've got some strong incumbent brands. So just how is that rollout just performed relative to your expectations?
I think, you know, the, the rollout, we've been very careful in rolling out the Fendt brand around the U.S. You hear us talk a lot about that Fendt experience. Not every AGCO dealer today is going to ultimately be a Fendt dealer, he or she. Not every dealer who has multiple outlets will likely be able to offer Fendt out of those outlets. They have to sort of meet on this overall Fendt experience. You know, part of that is the dealer service, his or her ability to repair, having the right products, the fill rates for their parts. That Gold Star warranty is a differentiator for us here in the industry. We've been very careful in rolling out and bringing out these Fendt dealers.
You know, we have about 75% of the white space covered here in the U.S. with Fendt. We still see opportunity to grow from a white space standpoint, but we also see opportunities to grow with our existing dealers, as they continue to gain more and more recognition in the marketplace related to the Fendt brand. You know, when we look at the quality, we look at the feedback from the, from the farmers, you know, the product itself, the technology, the fuel efficiency, all of these things, the warranty, deliver a very strong Fendt experience. You know, our one challenge that we've dealt with over the last year and a half has been our delivery. No surprise with the supply chain, you know, it's sort of that commitment date has been a challenge. We've been extending it.
As we look at the farmers and telling him or her they're gonna get that tractor in date X, it's only delay. That's been one of our inhibiting factors or one of our challenges. That's sort of why we've constrained our order book. You heard us talk on the fourth quarter call. We've capped it at three quarters 'cause we wanna have better visibility on our production and ability to deliver. When we tell that farmer a commitment date, you know, we work hard to deliver on that date, and we've tried to get better. And that was one of the reasons why we made the decision last quarter to slow that down. Overall, we've seen really good demand. Farmers see the value of it, and you see that in the profitability both in North America and in what we're seeing...
Sorry, in South America and what we're seeing here in North America, you know, is really good interest. It's more of our ability to supply the demand right now.
Yeah. Got it. Let's touch on parts, you know, the aftermarket being another contributor or a piece of that margin improvement. Is that a function of a better, you know, dealer coverage? Is it a function of fill rates? What are the factors that either support that?
Sure. There's a couple pieces that go into the parts business and the growth. Again, high margin business for us. you know, I think really 2 things. One is starts with fill rates, right? Having the right part at the right dealer at the right time, so when that farmer needs it, you know, his or her first call is to the dealer. Part's there, and they're getting their tractor or their combine up and running as quickly as possible. Europe and North America, we had done very well at fill rates over the last couple of years, a really increased level of focus to improve the fill rates to more industry-leading fill rates now in South America as well. We've seen good improvement there, which is helping drive growth.
The second one is working more with the dealers and helping them in the penetration with the AGCO products. Again, every dealer will buy a percentage of the products from AGCO or from a third party, making sure that we're working with them to increase the penetration of our parts to them, and then more importantly, their penetration with the farmer. As the farmer is replacing his or her parts, you know, not all of it comes from the dealer, but trying to make sure that the dealer understands how to service those farmers better so that they can supply the parts when the farmer needs it. A lot of work being done there. Then you layer in the connectivity, right?
As we talk about these smart machines, the digital information that we're getting, you know, knowing what's about to happen or when it happens, making sure that dealer, that farmer knows we saw the error code, you know, you're due for a replacement of your oil change and filter. You know, can we ship you this, or do you wanna schedule that? Creating more connectivity with that farmer, you know, is really areas we're getting better. You know, that doesn't necessarily lend itself a lot with that first farmer.
As you think about the second and the third owners, as they move further away from that original dealer, you know, making sure that that digital connectivity with them to build a longer connection with them, potentially extended warranties and other things that allows you to service that platform or that tractor for a longer period of time is really where we're seeing some more opportunities going forward to continue that growth trajectory of the parts business.
Presumably, I mean, you started the company was founded as a basically a collection of tractor brands, and you've grown the product portfolio over time, and I'm guessing those different product categories also have different aftermarket streams associated with them. Is that?
Mm-hmm.
I mean-
Yeah. We're trying to commonize. Trying to commonize as much as possible. When you look at a replacement part, it's an AGCO replacement part. It's not a Fendt or a Massey or a White or a Challenger. You know, generally speaking, it's more AGCO parts. Trying to create that simple, simplified inventory system, 'cause if I had to have 2 filters, one Fendt, one Massey, I got SKU complexity. Again, trying to create more of a common platform on the parts servicing side.
Got it. If anyone has any questions, then go ahead. Right here.
Sorry. The question, a little bit hard. The order book, is it, are they hard or is it? Yeah. What I would tell you is-
The question was basically the outlook for the order board.
I think your question is could we grow the order boards, you know, as we go through the year. If we look at our order boards, South America, you know, we only open the order book one quarter out. As we said on our fourth quarter call, we're booked through Q2 right now. For the last year and a quarter or so, we've only been opening at one quarter in advance to make sure that we're managing the pricing as effectively as possible, given some of the inflationary environmental conditions we saw down there. There's a chance to continue. You know, that will continue to build quarter after quarter. We're producing 3%- 5% more in hours, we know what we can accept in the order board.
Europe, we're out 3 quarters. You know, that's sort of locked. Our production capacity aligns with our order board. North America, we're out 3 quarters as well. That's the one that we've chosen to constrain because of this Fendt experience that I was mentioning earlier to make sure that we're delivering on our commitments to the farmers and the dealers. You know, if we would've unconstrained that demand, I think our order board would've been up double digits in the high horsepower and down in the, in the low horsepower. Again, really strong demand there. I think your question of could we do more, supply chain is gonna be that variable.
If supply chains improve faster than what we had expected, we're able to get more equipment out of our factory sooner, it'll allow us to deliver to those customers sooner and allow us to replenish what we have available. I think in the near term here, you know, we're basically we're full, and we're producing to align with the orders.
I just did before we go to the question. A summary on that is that caution needs to be applied when as you think about order boards today versus where they were 12 months ago or 9 months ago, right? Because of that dynamic of you had free-flowing supply a year ago, you don't now, right? That naturally is going to impact your order intake.
Yeah.
Is that a fair summary or?
Well, I think we're, I mean, we're seeing strong demand that is outpacing our capability to supply. You know, we're choosing to restrict because we wanna make sure that we're not over-committing from a price standpoint. If we give an order, we wanna acknowledge the commitment to the order without sort of locking in the price today, trying to make sure that we, given the volatility of inflation, we don't wanna over-commit to a retail customer, right?
The last thing that we really wanna do with a farmer is he or she locks in a retail order six or nine months from now, and then we have to do something different on the price, right? That's what we try to avoid. We try to maintain as much flexibility to acknowledge the order but not necessarily lock in the price. Where we can, we want that farmer commitment. He or she knows they're getting their combine at this price, you know, and trying to manage that as effectively as we can.
Got it.
You've historically been predominantly a tractor company. I think tractors made up 60% of sales over the past few years. I'm curious, how do you think your mix shifts? Looking to 2026, especially, how do you what do you think your mix looks like over the next five years?
We're still gonna be predominantly a tractor company in 2026. That's the highest volume of units. I think if you look at the new products that we've brought to market over the last several years, you know, our Momentum Planter, we would say, is the best in the industry. You know, we see super strong demand for that planter around the world. That's gonna continue to grow in volume. We look at the new IDEAL combine that we brought to market here. We're seeing really good momentum in the order book for the IDEAL combine. We expect to continue to gain share with that product around the world.
You know, I think I said on the fourth quarter call, if I look at some of the regions, the order book for IDEAL was up over 70% in certain parts of the world in the fourth quarter. We're seeing really good demand. We expect to see that share capture continue to progress over the next several years. The sprayers, again, which is an area that we've, you know, we just introduced the new Fendt Rogator coming to market this year. Again, we think that'll be one of the best in the industry, and we see that growing in share as well. I think what you're gonna see is, you know, tractors continue to be the dominant portion of them, but a better overall mix as the full product portfolio, especially with the Fendt full line. Right?
Fendt several years ago was more just tractor. Now you have the IDEAL combine, you have the Momentum Planter, and you have the Fendt Rogator. All of those giving the dealers a full complement of products to offer the farmers. We definitely see a better balance between them. You're still gonna see tractors be the dominant one.
Sorry. Is the strategy for the dealers with rolling out the Fendt brands to kind of lead with the tractor and converting the customers and then have great success with that and then try to convert them to other Fendt products, like you talked about the IDEAL combine, the sprayers, the planters? Is that kind of the strategy in the dealer channel?
Yeah. Every farmer is gonna be a little bit different on what he or she's looking for. Again, directionally, if you think about the strength of the Fendt brand, originally it is that tractor. It is the, you know, the premier tractor in the industry. It offers the best fuel efficiency in the industry. It is sort of the leading edge to what a farmer's gonna look for because it's such a critical part of his or her farm. As they start to see the value of that product. Again, when you look at the Fendt tractor, Fendt tractors is the one product that the Net Promoter Score actually goes up after use versus going down.
All of us who buy new cars, we get that new car survey, and then a year later, how likely to recommend, most of it goes down. The Fendt tractor actually goes up as farmers are more impressed with it. Using that as that catalyst of how do you bundle then the planter. What I would tell you in South America, for example, the planters are driving because the Momentum Planter is so strong, but they need a big Fendt tractor to pull those. They're sort of in some ways in South America, you're seeing more of the planter as a catalyst for the Fendt sales, rather than just as a tractor driving it. It's a little bit unique depending on the region and the farmer, but tractors first, but planters are also driving it a lot.
Thank you for your comments. I have a question on precision ag. When you look at your in-house studies on your precision planters, et cetera, does it result in any meaningful reduction in fertilizer usage or any ag chemical usage?
I mean, the whole point of our precision ag is to help the farmers reduce their input costs. There's two parts of the planter. You know, one is focused on the yield. If you think about the SmartFirmer technology, it's helping the farmers optimize or improve the yield of their crop. A little bit harder for them to see because it's the planting depth or the, or the fertilizer is being applied, really trying to maximize the yield. The second part is on reduced uses of input, so less fertilizer, less herbicides. All of that is part of that precision application process.
If you look at how we look at a farmer and how he or she spends their money across all the different applications, the Precision Planting application helps address everything outside of land and new equipment sales in effectively either reducing their spend on those type of products or ultimately improving the yield, making the input cost per acre less. Our target for our Precision Planting when we go to the farms, you know, effectively trying to explain to the farmers that we're looking for them to have a 1 year-2year payback on these applications, and that comes from lower spend on other applications or increased yield related to the acres that they're using our equipment on.
Would you say that the lower usage is about maybe about 5% or 10% or more? Is there any color that you can give us?
That's probably an average number. you know, if you go like to the extreme, our targeted spraying can reduce your post-emergent herbicide use by 60% or 70%. You know, just depending on what aspect of the crop cycle you're talking about, it can be low like that and probably on average 5-10, but can be as high as, you know, significantly higher.
Good. Thank you.
Maybe we just kind of go around the world quickly and kinda get a sense for sentiment amongst your dealers. We'll start with Europe. There's a, you know, sentiment gauge that gets probably way too much attention and focus because it's the only one out there. You know, it has improved pretty notably here in recent months. I'm just curious if that matches the feedback that you're hearing from the dealer base across Europe.
Yeah, I think overall sentiment in Europe continues to be strong. Of the three major regions we play in, it's usually it's the least volatile, as you know, you know, because of the subsidies by the government there, you generally don't see that market get too hot or too cold. It generally fluctuates around the mid-cycle. If you look at the farm economics, again, commodity prices are strong. For dairy farmers in Europe, they're doing quite well. Again, we see, you know, the sentiment improving, you know, lending itself to another strong year for us. We said the overall market relatively flat right now. Again, you're looking at the lower horsepower market being a little bit weaker, high horsepower tending to be stronger there.
We see good market dynamics in Europe, going through 2023.
Got it. We touched earlier on North America, but just as you think of from a production standpoint within that divergence that you mentioned in terms of the strength in high horsepower versus the weakness in some of those lower horsepower categories from an inventory perspective across the industry have gotten, you know, fairly elevated. How does AGCO fit in within that, and how are you managing production schedules, you know, to address that?
I guess there's a couple things. You're right. If we look at the inventory levels for the lower horsepower tractors, we would tell you, at least here in North America, they're probably about more in line with their traditional levels. For us that's, you know, there's two things that we do on the low horsepower tractors. One is for ones that we do make, well, obviously, we'll slow the production. If we can reallocate the labor, any parts of the production, we'll do that towards other types of equipment. We do buy a lot of these lower horsepower tractors from third-party suppliers, and so we're not necessarily producing them. We will slow the order intake there, and, you know, they will have to slow their production or find alternative places to ship those tractors.
We're not as exposed from a fixed cost absorption on these low horsepower tractors the way maybe others are because of our sort of third-party sourcing with them.
Those are still produced in, mostly in, Asia, correct?
Correct.
Got it. Okay. Well, and sticking the last one in North America, you about a year or so ago, went through kind of a dealer assessment program. I think, you know, that the trend towards dealer consolidation has been going on for quite some time in North America. Where does AGCO fit in within that?
Yeah.
that, kind of dynamic?
Sure. I'd tell you, still early stages from the dealer evolution. To your point, we do wanna create, if I think about the Fendt one first, we talked about rolling out from a white space. You know, we have about 75% of the white space covered with our Fendt dealers. Still room to grow there, still room to convert, you know, many of these farmers or these dealers to the Fendt dealers. That, you know, that we're taking a measured approach again 'cause of the Fendt experience. If I think about the other opportunity, we talked about the Massey Ferguson transformation, part of that is the dealer distribution network here in the U.S. We have a very long tail of dealers that are selling the Massey Ferguson brand.
Many of them maybe own one store, so they're not as large professional type dealers. We're working on a lot of consolidations, trying to create more of these larger professional dealers who understand absorption better, who can manage multiple sites to create more of these large professional dealers. Still early. We're still in the early stages of that. That's part of that profitability improvement plan we talked about over the next several years is really trying to consolidate that dealer network here in North America, to create, you know, more likely more sophisticated and ultimately more profitable dealer network that can help drive better penetration rate on the farms, better penetration on the parts and service aspects of the business, you know, helping facilitate some of this growth we've been talking about.
Got it. Got it. In South America, there were some rumblings of maybe, you know, a little bit of caution that crept in on the recent elections. What are you hearing from your dealers in just in Brazil as that-
Yeah.
as some time has passed there?
You know, Brazil for us has been incredibly strong. I think in South America, we were up 56% last year, excluding currency. You know, we've done a fundamental transformation of the business in South America, migrating from what was traditionally these low horsepower tractors in southern Brazil, moving up to the Mato Grosso or the Midwest region to these large professional, large ag type farming communities. We've seen great growth there. Fendt was started with a company-owned store. I think we now have 25 independent stores there. You know, we still have opportunity to expand the white space in Brazil. We feel really good about what we're doing to gain share and build out the opportunity in Brazil. If I look at the country itself, the macro backdrop, you know, Brazil is a very strong market today.
If you look at the level of exports in 2022, they were up versus 2021. If you look at the forecast, they're expected to export more in 2023 and then again in 2024. As China comes out of its COVID lockdown, they're a large recipient of the exports from Brazil. All of that lends itself to a strong market. Brazil is the only major country that's actually adding arable land, so they're increasing the density of their cattle land and taking that space and creating more arable land for row crops. As we look at the fundamentals, not enough grain in the world today. Stocks-to-use ratios are still at relatively low levels, close to historically low levels.
The challenge of what's going on in the Ukraine, which produced about 13% of the global calories, is still depressed, not going to produce what it was pre-war. You look at those fundamentals, growing population, increasing middle class, which consumes more protein, which drives significant increase in grain demand. The macro or the mega trends on ag is very strong. Where Brazil sits today as a major producer and a major exporter is a significant driver for what we see as, you know, strong demand in the segment, and as we said on the call, likely into 2024. I know there's been some questions about the election.
You know, there was some protests, I think, for a couple days here, but nothing that we saw that really slowed down the momentum or the order book that we're seeing for our equipment, especially on the large ag. Small ag's a little bit different because of the interest rates and things of that nature
Large ag continues to be very strong.
Got it. As you think about the, how you run the divisions, historically, it was geographically run. I believe you've changed it to more to it's brand oriented. You're running Fendt globally rather than North America, South America, Europe. What, what, you know, results have you seen from that? I assume there's some efficiencies associated with that, but maybe just talk to that.
Yeah. We still run by region. We're still organized by region. We still report by region. What we layered on is we talked about taking Fendt global or looking at Massey Ferguson on a global basis is us appointing these global leads of Fendt, Valtra, Massey Ferguson, really to create more commonality and efficiency across the brand and across the world. What we're seeing is now better information sharing, better products being shared across the world with more commonization. I'll use Massey Ferguson as an example because there's a lot of internal optimization still to be done there. When we looked at Massey, which is one of our global brands, it was sold differently, different platforms which may deliver the same end use to the farmer, but two very different configurations.
You had SKU complexity, manufacturing complexity that was sort of unnecessary. As we looked at that, commonizing the platforms with Massey, streamlining from a manufacturing, from a sourcing perspective, taking the cost out, you know, and allowing Massey to market itself as a common, platform to the world, you know, created efficiencies for us. What I would tell you is we do have these global brands, but it's more of a matrix. You have regions and then the global brands looking across the regions, making sure that we're optimizing Fendt or Massey throughout South America, North America, Asia, and Europe.
Got it. Okay. Sum it all up, outlook for as you think of around the globe, areas that or geography that you're most optimistic, and one you think, you know, maybe has where you're watching more closely. Does anything stand out?
I mean, we're again, we're bullish on 2023. I mean, we think the markets commodity prices are staying strong. We're booked into the third quarter. Production's looking good. Pricing's high single digits more than what we see offsetting more than the inflation. Strong demand for precision. You know, overall, we feel really good about what we're doing with where we're winning share, how we're winning share. We think it's going to, you know, reduce our break-even point, improve our trough margins as well. You layer that with the strong macroeconomic backdrop and, you know, we're looking for another strong 2023 and beyond.
Pretty clear. Thank you.
Thank you.