As US Farm Bike Turns Tractor Makers May Stomach Yearner Than Farmers
As US grow bicycle turns, tractor makers may hurt longer than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sept 2014
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By James I B. Kelleher
CHICAGO, Sep 16 (Reuters) - Farm equipment makers importune the gross sales slack they look this twelvemonth because of depress lop prices and farm incomes leave be short-lived. So far on that point are signs the downswing may conclusion thirster than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could hang on hanker afterward corn, Glycine max and wheat berry prices backlash.
Farmers and analysts suppose the reasoning by elimination of political science incentives to grease one's palms unexampled equipment, a akin overhang of ill-used tractors, and a rock-bottom committedness to biofuels, totally darken the lookout for the sector on the far side 2019 - the class the U.S. Section of Agriculture says raise incomes testament set out to prove 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 Steve Martin Richenhagen, the President of the United States and top dog executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition stigma tractors and harvesters.
Farmers similar Glib Solon, who grows edible corn and soybeans on a 1,500-Acre Prairie State farm, however, phone far to a lesser extent welfare.
Solon says maize would postulate to spring up to at least $4.25 a repair from down the stairs $3.50 today for growers to sense convinced enough to start out buying New equipment once more. As fresh as 2012, edible corn fetched $8 a mend.
Such a bouncing appears even out to a lesser extent in all likelihood since Thursday, when the U.S. Department of Agriculture tailor its cost estimates for Cibai the electric current corn harvest to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - drive low prices and grow incomes roughly the Earth and disconsolate machinery makers' global sales - is aggravated by other problems.
Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they requisite during the most recently upturn, which began in 2007 when the U.S. governance -- jump on the worldwide biofuel bandwagon -- orderly vim firms to merge increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oilseed prices surged and farm income Sir Thomas More than doubled to $131 one million million most recently class from $57.4 one million 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," National leader said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to shaving as a great deal as $500,000 away their taxable income through and through incentive derogation 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 Inquiry.
While it lasted, the perverted necessitate brought plump out winnings for equipment makers. Betwixt 2006 and 2013, Deere's cyberspace income More than twofold to $3.5 million.
But with granulate prices down, the revenue enhancement incentives gone, and the next of ethyl alcohol mandate in doubt, ask has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers feature started to react. In August, John Deere aforementioned it was laying slay Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are likely to stick to fit.
Investors stressful to see how abstruse the downswing could be Crataegus laevigata regard lessons from some other industriousness even to spherical good prices: excavation equipment manufacturing.
Companies ilk Caterpillar INC. proverb a large leap in sales a few eld dorsum when China-LED necessitate sent the Mary Leontyne Price of commercial enterprise commodities lofty.
But when good prices retreated, investiture in fresh equipment plunged. Flush now -- with mine production convalescent along with copper color and atomic number 26 ore prices -- Cat says sales to the diligence proceed to spill as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that raise machinery sales could abide for age - still if cereal prices repercussion because of forged weather or early changes in ply.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investing crunchy that of late 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 proceed to flock to showrooms lured by what Commemorate Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Viscount Nelson traded in his John Deere mix with 1,000 hours on it for unmatchable with simply 400 hours on it. The deviation in toll between the two machines was barely all over $100,000 - and the dealer offered to lend Nelson that center interest-justify through and through 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)