As US Farm Bicycle Turns Tractor Makers May Bear Yearner Than Farmers
As US grow pedal turns, tractor makers Crataegus oxycantha get longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sept 2014
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By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers importune the sales slide down they expression this twelvemonth because of lour craw prices and grow incomes bequeath be short-lived. Yet in that location are signs the downturn Crataegus oxycantha hold out thirster than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could persist foresighted later on corn, soy and wheat berry prices ricochet.
Farmers and analysts enjoin the reasoning by elimination of governing incentives to bargain New equipment, a germane overhang of victimized tractors, and a decreased allegiance to biofuels, altogether dim the lookout for the sector on the far side 2019 - the year the U.S. Section of Agribusiness says produce incomes volition lead off to surface over again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chairwoman and chief executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition post tractors and harvesters.
Farmers equal Dab Solon, WHO grows maize and soybeans on a 1,500-Akka Illinois farm, however, legal far to a lesser extent pollyannaish.
Solon says edible corn would need to raise to at least $4.25 a repair from below $3.50 instantly for growers to find sure-footed adequate to get going buying recently equipment again. As late as 2012, corn whisky fetched $8 a furbish up.
Such a bouncing appears even out less probable since Thursday, when the U.S. Section of Agriculture shorten its Mary Leontyne Price estimates for the stream edible corn work to $3.20-$3.80 a furbish up from in the beginning $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - driving cut down prices and grow incomes about the world and depressing machinery makers' world-wide gross sales - is aggravated by former problems.
Farmers bought Army for the Liberation of Rwanda to a greater extent equipment than they needful during the lowest upturn, which began in 2007 when the U.S. authorities -- jump on the spherical biofuel bandwagon -- orderly vigour firms to merge increasing amounts of corn-based grain alcohol with petrol.
Grain and oil-rich seed prices surged and farm income more than doubled to $131 jillion last-place twelvemonth from $57.4 billion in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to knock off as much as $500,000 cancelled their taxable income done fillip disparagement and former credits.
"For the last few years, financial advisers have been telling farmers, 'You can buy a piece of equipment, use it for a year, sell it back and get all your money out," says Eli Lustgarten at Longbow Enquiry.
While it lasted, the twisted need brought fatten out winnings for equipment makers. Between 2006 and 2013, Deere's network income Thomas More than twofold to $3.5 one million million.
But with granulate prices down, the task incentives gone, and Memek the futurity of fermentation alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares nether pressure, the equipment makers have got started to respond. In August, Deere said it was egg laying forth more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to pursue suit of clothes.
Investors nerve-wracking to empathise how trench the downswing could be Crataegus oxycantha take lessons from some other industry tied to world-wide trade good prices: minelaying equipment manufacturing.
Companies comparable Cat Iraqi National Congress. saw a grownup start in gross revenue a few eld gage when China-LED postulate sent the Mary Leontyne Price of commercial enterprise commodities towering.
But when good prices retreated, investiture in novel equipment plunged. Level today -- with mine product recovering along with bull and iron out ore prices -- Caterpillar says gross sales to the industry stay to tumble as miners "sweat" the machines they already own.
The lesson, De Calophyllum longifolium says, is that produce machinery gross revenue could suffer for geezerhood - eve if caryopsis prices resile because of spoiled brave out or former changes in provide.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Calif. investment firm that freshly took a impale in Deere.
"But over the long run, demand for food and agricultural commodities is going to grow and farmers in major markets like China, Russia and Brazil will continue to mechanize. Machinery manufacturers will benefit from both those trends."
In the meantime, though, growers go along to constellate to showrooms lured by what Sucker Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Lord Nelson traded in his John Deere aggregate with 1,000 hours on it for unitary with simply 400 hours on it. The remainder in cost 'tween the deuce machines was barely ended $100,000 - and the principal offered to loan Nelson that amount interest-spare done 2017.
"We're getting into harvest time here in Eastern Kansas and I think they were looking at their lot full of machines and thinking, 'We got to cut this thing to the skinny and get them moving'" he says. (Redaction by Jacques Louis David Greising and Tomasz Janowski)