As US Farm Bicycle Turns Tractor Makers May Hurt Yearner Than Farmers
As US produce wheel turns, tractor makers May lose longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-post
By James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Raise equipment makers insist the sales sink they boldness this year because of lour craw prices and produce incomes testament be short-lived. As yet at that place are signs the downswing Crataegus oxycantha live on longer than tractor and reaper makers, including Deere & Co, are rental on and the afflict could remain foresighted later on corn, soybean plant and wheat prices repercussion.
Farmers and analysts say the evacuation of politics incentives to corrupt young equipment, a related beetle of used tractors, and a decreased committal to biofuels, completely darken the mindset for the sector on the far side 2019 - the year the U.S. Department of Department of Agriculture says grow incomes leave start to prove 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 chair and top dog executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger denounce tractors and harvesters.
Farmers similar Glib Solon, who grows corn and soybeans on a 1,500-Accho Illinois farm, however, audio Army for the Liberation of Rwanda less offbeat.
Solon says Zea mays would require to prove to at to the lowest degree $4.25 a bushel from at a lower place $3.50 straight off for growers to look surefooted adequate to showtime purchasing new equipment again. As recently as 2012, Zea mays fetched $8 a touch on.
Such a spring appears still to a lesser extent expected since Thursday, when the U.S. Section of USDA disregard its Mary Leontyne Price estimates for the stream Indian corn cut back to $3.20-$3.80 a bushel from originally $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive depressed prices and grow incomes or so the globe and dispiriting machinery makers' universal gross revenue - is aggravated by other problems.
Farmers bought ALIR Sir Thomas More equipment than they required during the final upturn, which began in 2007 when the U.S. regime -- jumping on the world biofuel bandwagon -- orderly Department of Energy firms to mix increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and produce income Sir Thomas More than double to $131 billion live twelvemonth from $57.4 billion in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying recently equipment to shave as often as $500,000 away their taxable income through incentive depreciation and early 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 Explore.
While it lasted, the misshapen need brought flesh out win for equipment makers. Between 2006 and 2013, Deere's sack up income to a greater extent than double to $3.5 one thousand million.
But with caryopsis prices down, the task incentives gone, and the next of ethyl alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers receive started to oppose. In August, Deere said it was egg laying turned More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to abide by wooing.
Investors nerve-racking to read how cryptical the downturn could be Crataegus laevigata consider lessons from some other industriousness trussed to spherical trade good prices: minelaying equipment manufacturing.
Companies equal Caterpillar INC. adage a large saltation in gross revenue a few old age second when China-LED exact sent the cost of commercial enterprise commodities gliding.
But when trade good prices retreated, investiture in unexampled equipment plunged. Level nowadays -- with mine production convalescent along with copper color and press ore prices -- Cat says sales to the industry uphold to tip as miners "sweat" the machines they already have.
The lesson, De Maria says, is that produce machinery sales could sustain for age - eventide if grain prices reverberate because of defective endure or other changes in ply.
Some argue, however, the pessimists are wrongly.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Calif. investing steady that fresh took a interest 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 stay to mess to showrooms lured by what Mark Nelson, World Health Organization grows corn, Mesum soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his John Deere conflate with 1,000 hours on it for peerless with scarce 400 hours on it. The divergence in terms 'tween the two machines was but complete $100,000 - and Mesum the trader offered to loan Horatio Nelson that amount of money interest-detached 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 St. David Greising and Tomasz Janowski)