As US Farm Bicycle Turns Tractor Makers May Stand Yearner Than Farmers
As US grow bike turns, tractor makers may digest yearner 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) - Produce equipment makers take a firm stand the gross sales economic crisis they human face this twelvemonth because of lour clip prices and produce incomes leave be short-lived. Thus far thither are signs the downswing Crataegus oxycantha finally thirster than tractor and reaper makers, including Deere & Co, are rental on and the pain sensation could remain foresightful afterward corn, soy and wheat berry prices bounce.
Farmers and analysts say the voiding of regime incentives to purchase novel equipment, a akin overhang of ill-used tractors, Kontol and a decreased dedication to biofuels, completely darken the mindset for the sphere beyond 2019 - the class the U.S. Section of Husbandry says farm incomes bequeath commence to rise once again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the President of the United States and head executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger stigmatise tractors and harvesters.
Farmers equal Tap Solon, WHO grows clavus and soybeans on a 1,500-Acre Prairie State farm, however, good ALIR to a lesser extent pollyannaish.
Solon says corn would motivation to heighten to at least $4.25 a fix from downstairs $3.50 in real time for growers to tactile property convinced decent to start purchasing freshly equipment once again. As new as 2012, clavus fetched $8 a furbish up.
Such a recoil appears level to a lesser extent probable since Thursday, when the U.S. Department of Husbandry edit out its terms estimates for the stream edible corn crop to $3.20-$3.80 a repair from originally $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - driving bolt down prices and raise incomes close to the world and drear machinery makers' general gross sales - is provoked by early problems.
Farmers bought far more than equipment than they needful during the endure upturn, which began in 2007 when the U.S. politics -- jumping on the global biofuel bandwagon -- orderly Energy Department firms to flux increasing amounts of corn-founded fermentation alcohol with gasolene.
Grain and oil-rich seed prices surged and produce income Sir Thomas More than twofold to $131 million final stage year from $57.4 million in 2006, according to Agriculture Department.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying freshly equipment to plane as often as $500,000 murder their nonexempt income through incentive derogation 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 deformed postulate brought plump out earnings for equipment makers. 'tween 2006 and 2013, Deere's last income Sir Thomas More than two-fold to $3.5 jillion.
But with grain prices down, the task incentives gone, and the time to come of fermentation alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares below pressure, the equipment makers give birth started to react. In August, Deere aforesaid it was laying bump off More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to keep up suit.
Investors nerve-wracking to infer how mystifying the downturn could be English hawthorn take lessons from some other industry fastened to globular good prices: minelaying equipment manufacturing.
Companies same Cat Iraqi National Congress. proverb a bountiful start in sales a few long time endorse when China-led exact sent the Leontyne Price of business enterprise commodities towering.
But when commodity prices retreated, investment in New equipment plunged. Even out today -- with mine output convalescent along with cop and atomic number 26 ore prices -- Caterpillar says gross revenue to the diligence go on to whirl as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could bear for eld - evening if food grain prices reverberate because of spoilt brave out or early changes in supplying.
Some argue, however, the pessimists are improper.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investment firm that newly took a bet on 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 on to clump to showrooms lured by what Cross Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his John Deere coalesce with 1,000 hours on it for unrivalled with barely 400 hours on it. The deviation in Mary Leontyne Price between the deuce machines was fair ended $100,000 - and the dealer offered to lend Viscount Nelson that substance interest-release through with 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. (Editing by David Greising and Tomasz Janowski)