Agco (AGCO) and Trimble (TRMB) have closed their joint venture PTx Trimble, which focuses on precision agriculture and next-generation technology for farmers.

Agco Chairman, President, and CEO Eric Hansotia says the venture will help build technology for the "mixed fleet." "We serve farmers not only for one brand, like the Agco brands, but we serve all farmers. No matter who they've bought from in the past, we'll sell technology upgrades to take their existing machine and give it new capability with a technology module," Hansotia explains.

Hansotia describes the three go-to-market strategies the company has for PTx: selling to farmers so they can retrofit their equipment, selling the technology on new Agco products, and selling it to OEMs for them to use on their products.

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This post was written by Stephanie Mikulich.

Video Transcript

JULIE HYMAN: All right, another hotter than expected. Inflation reading coming in today. And while oil has been climbing recently prices for crops like corn, wheat, and soybeans have fallen over the past year. Let's discuss how inflation dynamics are affecting the business of farm equipment.

Joining us now, Agco Chairman, CEO, and President Eric Hansotia. Eric, it's great to see you. Thanks for being here.

ERIC HANSOTIA: Great to see you, Julie. Thank you.

JULIE HYMAN: So I know you guys just closed on the big deal for your joint venture. And I want to get to that in a moment with Trimble that really has a lot to do with agricultural technology. But first, I got to get your thoughts on the big economic news of the day in the form of the CPI report.

And I know you guys have been raising prices a little bit. I believe by 1 and 1/2 percent is the plan. But what are you seeing in your business in terms of inflation?

ERIC HANSOTIA: Well, first of all, the AG business generally doesn't move at the same pace as the general economy. It's more tied to the price of grain and in turn, the profitability of the farmer. Now, inflation and in turn interest rates do have some impact because many of our farmers finance their equipment.

But they often finance the net between their purchase of new and what they're trading in. So it's not a huge headwind. It is a headwind. But not a huge one like it is in some other industries.

JOSH LIPTON: And Eric, another issue. I want to get your take on the Francis Scott Key Bridge collapsing in Baltimore, Eric. You do use that port from what I understand. I'm just interested in what the ramifications, the impact Eric on your business.

ERIC HANSOTIA: Well, I mean, I'd have to start with seeing our thoughts and prayers go out to the tragedy that happened there to the people involved and the economic impact of all of those in the area. It's certainly going to be a major disruption for those folks. So that's primary.

Really for our business, it's not a big impact. We utilize a lot of different ports. We've already redirected traffic. We essentially feel like no customers will be impacted, no factories will be impacted by supply or finished product. So for our business, it's not a huge topic.

JULIE HYMAN: So let's get to the big topic for you, Eric. And that is indeed the closing, the recent closing of this joint venture with Trimble to form Trimble, which is focused on things like precision agriculture and next generation agricultural techniques. Sort of, first of all, explain to folks what exactly this is going to entail and what it's going to do for your business.

ERIC HANSOTIA: Well, it's the largest agtech deal in the history of the industry. We are so excited. I've been in agriculture and innovation my whole career essentially my whole life.

And this is probably the most exciting week of my career. And the reason for that is we're bringing together two of the top teams in the industry to form one new powerful absolute world leader now in the development of precision ag technology for what we call is the mixed fleet. And essentially, what that means is we serve farmers not only for one brand like the one set of brands like the Agco brands, but we serve all farmers no matter who they've bought from in the past.

We'll sell technology upgrades to take their existing machine and give it new capability with a technology module. So we serve all farmers all around the world no matter whether it's new equipment or machines that they have in their fleet that could be 5, 15, 20 years old. We can upgrade it.

JOSH LIPTON: I'm interested Eric, though, with this Trimble acquisition, how does what you offer differ than what Deere offers?

ERIC HANSOTIA: Well, essentially, we're both focused on solving some of the most difficult farming problems. But a couple of differentiators. Number one is our go-to market strategy. That's why I mentioned, we're very focused on this retrofit approach to the mixed fleet.

Agco through our precision planting business. And Trimble had the same DNA, same mindset in that we are going to solve the farmer problems for all farmers. So our competitors typically serve their brand of equipment, where we serve, we have Fendt and Massey Ferguson and Valtra as our machinery brands.

And if someone wants to buy a new piece of equipment, we'll put the technology on that. That's one Avenue to the market. But two other avenues to the market, we serve over 100 other Ag equipment manufacturers. We call them OEMs.

Over 100 other OEMs that will sell this technology to them to put it on in on their product and sell it from the factory. And then the third path to market is this retrofit approach where we'll sell a module to a farmer that they can keep their existing machine, and just upgrade it with a technology module giving their machine new capability. It can now do something for itself that the machine has new intelligence that it had before.

So retrofit, OEM partner, and our own machinery. Everybody else really just focuses on their own machinery.

JULIE HYMAN: Now, Eric, you mentioned earlier that what happens in this sort of Ag economy happens on a little bit of a different cycle from necessarily the broader economy. And indeed, you saw farm incomes peak what a couple of years ago. We've seen them sort of trend down. Where are we in this cycle? And how are you trying to capitalize on where we are in the cycle with this venture?

ERIC HANSOTIA: Well, I'll start with where are we in the cycle. We had extremely strong years in 2021, 2022, and even into 2023. We are racing to keep up to all the demand that we had. And it was actually unhealthy high levels of demand.

We were having extended delivery times to our farmers. So we've got that back under control. We've got our supply chains healed factories are running really, really well. Our partnerships with our suppliers are going very strong.

So that side of the equation is good. We still have pretty strong order banks. But much more in the normal range compared to what we've had over the last couple of years. It's true farm income is down, but it's down from an extremely high level.

This year will be not as strong as the last couple of years. But, in general, the farming business will still be if you look over a 10-year horizon, still a relatively good year. What are we doing to try and support farmers during this time when it's not as good as the last couple of years?

We're trying to provide technology solutions to them to solve their most challenging problems. And this retrofit approach really comes into play when the economy is not so strong. So instead of buying a new $350,000 planter, or a $600,000 sprayer, they can keep their existing machine.

And instead buy an upgrade kit, the new technology that can provide new functionality on that existing machine for a much lower price point. And so our aim is to have an ROI, return on investment for the farmer of one-year maximum for these retrofit kits.

They pay for themselves very, very fast in terms of either improving the farmer's yield getting more harvestable crop out or reducing the amount of inputs they're using to be more efficient. So that's our focus. It's even more valuable right now. Even though the industry is coming down, our retrofit business is growing

JULIE HYMAN: Eric, we got to leave it there. But we'll chat again soon. Eric Hansotia of Agco. Thank you so much.

ERIC HANSOTIA: Always love talking with you.

JULIE HYMAN: You, too.