"We remain very enthusiastic with respect to Ag Growth's prospects in 2013 and beyond. Although the historic 2012 U.S. drought will result in muted demand in the first half of 2013, it is becoming more apparent that optimism is returning to the marketplace and based on current conditions we anticipate a quick return to a positive U.S. agricultural environment. We believe Ag Growth's industry leading brands and diverse product offering positions the Company exceptionally well to capitalize on strong global agricultural fundamentals and we expect to deliver solid growth in both domestic and international markets over the long-term."
Sales of portable grain handling equipment in the first half of 2013 are expected to be negatively impacted by the U.S. drought of 2012. Inventory at the Company's dealer network is slightly higher than typical, reducing their need to replenish inventory levels, while poor 2012 crop production volumes have reduced U.S. farmer grain handling requirements. The new crop season is expected to change these demand dynamics, however, as the market begins to focus on anticipated 2013 crop production volumes.
The USDA, at its 2013 Agricultural Outlook Forum, forecast U.S. farmers will plant 96.5 million acres of corn in 2013 and harvest an all-time record 14.5 billion bushels. The projected harvest would represent a 35% increase in crop production, the primary demand driver for the Company's portable grain handling equipment. Accordingly, based on current conditions, management is optimistic with respect to demand for portable grain handling equipment in the second half of 2013.
The widespread drought in the U.S. impacted demand for commercial grain handling products. Decreased activity in the second half of 2012 resulted in lower backlogs entering 2013 which is expected to result in muted sales in the first half of the year. However, optimism appears to be returning to the marketplace and the Company's backlog of commercial business has now surpassed its backlog at the same time in 2012. Due to longer lead times associated with commercial business, new orders will largely be realized in the second half of the year. Based on improving sentiment and a growing order book management expects a return to strong sales of commercial equipment in the second half of 2013.
Ag Growth enjoyed great success offshore in 2012. In 2013, quoting activity is at new record highs and the Company's international back order is significantly higher than at the same time in 2012. The Company's increasing presence in many offshore markets, particularly the FSU, positions us well for sustained growth. In 2013, the Company will also introduce 105 foot diameter storage bins and commercial capacity grain drying equipment which will further complete Ag Growth's industry leading commercial product offering. A significant portion of the Company's current international business follows similar seasonal patterns to North America, with sales highest in the second and third quarters.
On balance, the short-term impact of the U.S. drought is expected to temper demand for both portable and commercial grain handling equipment in the United States in the first half of 2013. As a result, management expects adjusted EBITDA in the first half of 2013 to fall below 2012 levels, particularly due to softness in the first quarter. The year-over-year effect of the drought in the first half of 2013 is expected to be significant but is not expected to impact adjusted EBITDA to the degree experienced in the second half of 2012. The Company' payout ratio in the first half of 2013 is expected to increase compared to the prior year however, the Company's dividend policy will not be altered in response to this short-term weather event.
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