Business & Finance: Tractors Triumphant

On June 1, 1935 an investor could have purchased 100 shares in each of five leading agricultural implement companies for $17,000. Last week he could have sold these shares for $29,000. Even had the investor made his purchase as recently as Sept. 3, the last six weeks would have brought him an appreciation of $4,600. Last week’s developments in the agricultural implement boom included:

J. I. Case closed the week with a 6¾ point jump to 93¾, high for the year.

Deere & Co. also made a new high—50¾— for 1935.

Caterpillar Tractor reported $4,311,643 earnings for the first nine months of 1935 against $2,932,892 for the same period in 1934.

Allis -Chalmers reported $1,098,000 earnings for the first eight months of 1935, as against a deficit of $1,039,406 for all 1934.

International Harvester issues no interim reports but Midwesterners gossiped that the company’s cash and securities, amounting to $63,000,000 on Jan. 1, 1935, had increased by some $11,000,000.

All these facts combined to show in what kindly way the wind, fanned by AAA, was blowing for John Farmer.

To the city dweller, an agricultural implement may be a hoe or a pitchfork. But the implement industry thinks of itself in terms of reapers, harvesters, threshers, trucks and tractors—particularly tractors. Its business is essentially the mechanization of the farm, the replacement of four-legged power by power obtained from oil and gasoline engines. Its goal is the technological obsolescence of the horse.

Great decade for the implement maker began in 1920. In that year there were 25,748,000 horses and mules on U. S. farms, which developed 20,970,000 h.p. and supplied 56% of total farm power. At the same time U. S. farmers had 139,000 trucks and 245,000 tractors, developing 7,700,000 h.p. By 1930 the horses and mules had dropped to 19,050,000, competing with 900,000 trucks and 920,000 tractors. The horse horsepower had fallen to 17,171,000 (24%) whereas the truck & tractor horsepower had risen to 44,511,000 (63%).

Depression brought a bad setback to mechanization. In the first place, the farmers’ gross income dropped from about twelve billion dollars in 1929 to about five billion dollars in 1932. In the second place, falling prices on farm products made mechanical farming uneconomic. With wheat at $1 per bu., the tractor-farmer should make twice as much money as the horse-farmer. With wheat at 40 ¢ per bu., the horse-farmer may make a little but the tractor-farmer will lose.

In 1933 the farmers’ gross income rose to $6,000,000,000 and to $7.300,000.000 in 1934. This year it should be in the neighborhood of $8,000,000,000. So the tractor again comes lumbering over the farm horizon. There are no current figures on the truck and tractor population, but horses have dropped to 16,600,000. Sales of farm implements have risen even more sharply than the rise in farm income. From a 1932 low of some $150,000,000 they have more than doubled, until domestic sales for the present year are estimated at $350,000,000—a total almost equal to the domestic sales for 1930. Profits, and even dividends, have returned to the farm implement industry for the first time since 1930 and another section of U. S. business has definitely turned Depression’s corner. Noteworthy among the companies which have shared this boom:

J.I. Case Co. of Racine, Wis., dates from a company founded in 1842 by Jerome I. Case. With a complete line of farm equipment, it is outranked in the industry only by International Harvester and Deere & Co. Its 1925-29 earnings averaged about $3,600,000 a year. In 1934 it lost $700,000 for its third consecutive deficit. This year it will undoubtedly finish in the black, and in July it paid a $1 dividend on its preferred, which still left it $8.25 in arrears. Because it has only 190,000 shares of common stock, it gyrates wildly in the market. Case sold as high as 515 in 1928, as low as 16 in 1932.

Deere & Co. of Moline, Ill. was one of the first U. S. manufacturers of steel plows, is still the largest steel-plow maker, although the tractor is its major product. It made $15,182,000 in 1929, lost money in 1932 and 1933, made $379,000 in 1934. Like Case, Deere & Co. spent some of its 1935 cash catching up on preferred dividends.

Caterpillar Tractor Co: of Peoria, Ill., a California company, concentrated production in its present Midwestern home in 1932. It was a pioneer (1905) in the development of the track type of tractor as opposed to the wheel type, and holds so many patents in this field that last spring it sued International Harvester for six infringements, won a lower court decision on five.

So many tractors are now powered with Diesel engines that Caterpillar has become the largest U. S. Diesel engine manufacturer, in 1934 accounting for over 30% of the Diesel horsepower output. As its tractors are used in land-grading and road-making, it has benefited not only by AAA’s farm bounties but equally by PWA’s road building and construction work. Everybody who can use a Diesel engine is a prospective Caterpillar customer, and Caterpillar’s industrial market overshadows its agricultural.

Caterpillar has no preferred stock, has made at least some payment on its common (1,882.240 shares) throughout Depression and in 1934 retired the last of a $10,000,000 funded debt incurred in 1930. The company made $11,600,000 in 1929, lost money only in 1932. Full year earnings for 1935 should come close to $5,000,000.

Chairman of Caterpillar Tractor is Clarence Leo Best, always called Leo because he detests the Clarence in his name. He also dislikes being bald, keeps his hat on whenever possible and sometimes even wears it in his office. Mr. Best is always buying himself another automobile, at present has two Cadillacs, a LaSalle and an Oldsmobile. He owns a large ranch in the San Joaquin Valley, is an ardent duck-hunter and trout-fisher.

Allis-Chalmers Manufacturing Co., with the largest of its seven plants at West Allis, Wis. (suburb of Milwaukee), goes back to Edward Allis, who started making sawmill and flourmill machinery in 1847. The company is commonly (and correctly) spoken of as the third largest electrical company, with only General Electric and Westinghouse ahead of it. It also makes all kinds of heavy industrial machinery, plus steam, gasoline and oil engines. In 1917 it put in a line of farm implements and today this division accounts for about 40% of its total sales.

A hybrid corporation is Allis-Chalmers, battling G. E. and Westinghouse on the one hand, International Harvester and Deere on the other. But its products are not so unrelated as they may appear. It takes power to drive the saws in a sawmill and the rollers in a flourmill and from making machinery to making the machinery to power that machinery was a natural Allis-Chalmers step. Good Allis-Chalmers’ customers are the Navy and the CCC.

The original Allis-Chalmers Manufacturing Co. bogged down in 1912, and to pull it out Otto Herbert Falk, militia general and Marquette University regent, was named receiver. In time Receiver Falk became President Falk, then (1932) Chairman Falk, still sits at the head of the directors’ table at a salary of $36,000 per year. He saw Spanish War service in Cuba and Puerto Rico. He omits pomp & ceremony, answers the telephone himself, keeps no one waiting, replied to a newsman’s request for an appointment, with a wire reading, “Will be in my office from ten to four tomorrow.” Smooth-faced, thin-haired, he offers visitors cigars, smokes an old black pipe. No implement man, he leaves routine management to President Max W. Babb and other executives. After he pulled the company through its receivership, grateful stockholders gave him a large bonus and stock-option, which he promptly divided among 100 of his key men. ”No executive is worth the huge sum represented by that offer,” said General Falk.

His chief recreation is his herd of milk goats. Goat milk is valuable in the treatment of certain infants’ diseases, and anyone with a sick child can call at General Falk’s farm and get without charge all the goats’ milk he can carry away.