UPDATE 4-Agco cuts profit forecast; shares plummet

* Cuts 2009 EPS view to $1.30-$1.50

* Sees Q3 net income at or below break-even

* Agco shares down nearly 12 pct, Deere off 0.6 pct (Adds CFO comments on credit issues in Central and Eastern Europe, background on dairy prices and Agco brands)

By Nick Zieminski

NEW YORK, Sept 16 (Reuters) - Farm equipment maker Agco Corp (AGCO.N) cut its 2009 earnings forecast on Wednesday, citing weak demand in Europe, and said it could post a net loss in the third quarter.

The announcement, which sent Agco's shares down as much as 12 percent, was the latest sign that the farm sector, which had been largely insulated from the worldwide economic downturn last year, is no longer immune as lower commodity prices and falling demand for equipment take a toll on the industry.

It follows word last week from industry leader Deere & Co (DE.N), that it was laying off more than 367 workers at its primary harvester factory in East Moline, Illinois, and would idle most of the plant's other employees for a month, because of reduced demand for combines.

Agco said it now expects full-year adjusted earnings of $1.30 to $1.50 per share, below analysts' average forecast of $2.06. It expects third-quarter sales to be down 30 percent to 35 percent from a year earlier, with net income at or below break-even.

The company, which makes tractors and harvesters sold under the Challenger, Fendt, Massey Ferguson and Valtra brand names, said demand continued to be especially weak in the credit challenged markets of Eastern Europe, Central Europe and Russia.

"Right now that market is very depressed," Andy Beck, the company's chief finance officer said at a conference in New York. "There is not any available financing in the marketplace, and as a result, market conditions are almost nonexistent in terms of demand."

Before the global economic crisis, demand for farm equipment in those markets was growing at a rate of 40 to 50 percent a year, Beck said.

Adding to Agco's problems in Europe has been a sharp deterioration in milk prices in the European Union, which have left dairy farmers -- key Agco customers -- struggling.

FALLING CROP PRICES, INCOMES

Agco shares were last down $3.85 at $28.71, while Deere was off 26 cents at $44.91, both on the New York Stock Exchange.

In July, Agco cut its full-year forecast to a range of $2 to $2.25 per share, from an earlier forecast of $2 to $2.50. At the time, Richenhagen told Reuters $2.50 was still achievable. [ID:NN30374861]

The company plans to report third-quarter results on Oct. 27.

At a conference in New York hosted by JP Morgan, Beck said the weakness had spread in recent months to North America, a region that had held up better than other markets, and might drag the company's recently profitable operations there back into the red.

"We expect the additional production cuts and dealer destocking will lead to lower net sales and margins in the second half of the year in North America," Beck said. "We are looking for North American operating income to be around or a little below breakeven for the second half of the year."

A key factor for the sector has been a retreat in commodity prices from last year's record levels, which will translate into sharply lower farm income this year and next, according to the U.S. Department of Agriculture.

Since sales of tractors, harvesters and other agricultural equipment rise and fall along with farm income, Agco, Deere and rival CNH Global NV (CNH.N) have all been scaling back production. (Reporting by Nick Zieminski and James B. Kelleher; editing by John Wallace and Gunna Dickson)