Survey Looks at Dealers' Opinions.

UBS Warburg's industry analysis predicts weak machinery demand, but improved commodity prices in 2001. The survey of about 1,000 agricultural equipment dealers across the US, conducted in November-December 2000, addressed such issues as changes in machinery market share, dealers' outlook for

For the near term, commodity prices are expected to continue depressed, with the 2000 corn crop expected to increase ending inventories of corn by 10 percent. However, indications are that farmers will plant less in 2001, use less fertilizer and irrigate less -- in large part as a result of the increased price of natural gas. This will lead to the first significant reduction in corn inventories since the signing of the Freedom-to-Farm bill in 1996, Bleustein says.

Although agricultural equipment markets are predicted to remain depressed in the North American and Western European markets in 2001, the expected reduction in corn inventories will likely lead to higher prices for corn in 2001. If so, this will improve farm equipment sales and earnings power of the agricultural equipment manufacturers in 2002, Bleustein predicts.

Bleustein says there is a historical relationship between the price of corn and Deere's stock price performance, so UBS Warburg expects Deere to trade higher as inventories of corn drop and remains a "buy" rating for the manufacturer. However, UBS Warburg is maintaining a hold rating on AGCO and CNH Global, largely due to the prospects of continued loss of market share to Deere.

Several questions in the survey dealt directly with the dealers' perceptions of their "major" brand's market shares, their relationships with manufacturers and their concerns about the future. The following items are some general findings to questions in UBS Warburg's dealer survey.

* As a group, agricultural equipment dealers expect weaker machinery sales in 2001, primarily due to the depressed state of agricultural commodities and farm profitability.

* New equipment prices are weakening slightly, as list prices continue to rise and discounts are widely implemented.

* Clean used equipment remains in demand, primarily due to the return of tractors from leases and from farm auction inventories. However, high dollar used equipment values remain depressed.

* Dealers are focused on reducing their wholegoods inventories, as new equipment inventories remain below normal levels, and used equipment inventories remain slightly above normal levels.

* Dealers believe that Deere's aggressive discounting and the dealer uncertainty surrounding CNH has resulted in Deere's taking market share from its competitors, most notably CNH Global.

* The majority of dealers expect the largest wave of leased tractors is still months off (likely August and beyond), and manufacturers are selling those machines that have been returned primarily to dealers.

* Farm consolidations continue to accelerate, which could accelerate the widening of the gap in the demand chain for agricultural equipment.

* The pace of dealer consolidation is also accelerating and appears to be encouraged by the major manufacturers, according to the dealer responses from all four dealer networks (AGCO, Case IH, Deere and New Holland).

* Dealer relationships at AGCO and Deere have gotten stronger, while relations at Case and New Holland are mostly neutral to weak and are getting worse.