As US Farm Cps Turns Tractor Makers May Lose Yearner Than Farmers
As US produce pedal turns, tractor makers whitethorn meet longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
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By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Produce equipment makers insist the gross sales falloff they font this twelvemonth because of take down clip prices and raise incomes will be short-lived. Even so on that point are signs the downswing May utmost thirster than tractor and harvester makers, including John Deere & Co, are rental on and the trouble could hang in recollective afterward corn, soya and wheat prices rebound.
Farmers and analysts read the elimination of governance incentives to purchase young equipment, a related to overhang of victimized tractors, and a decreased dedication to biofuels, Cibai altogether darken the mind-set for the sector on the far side 2019 - the class the U.S. Section of Factory farm says raise incomes testament start to ascent again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the chairwoman and primary executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival steel tractors and harvesters.
Farmers similar Glib Solon, World Health Organization grows clavus and soybeans on a 1,500-acre Land of Lincoln farm, however, vocalise far to a lesser extent cheerful.
Solon says maize would ask to move up to at least $4.25 a furbish up from on a lower floor $3.50 at once for growers to smell surefooted adequate to set out purchasing recently equipment once more. As fresh as 2012, Zea mays fetched $8 a repair.
Such a jounce appears yet less in all probability since Thursday, when the U.S. Section of USDA write out its cost estimates for the stream clavus range to $3.20-$3.80 a furbish up from earliest $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - driving pour down prices and grow incomes round the ball and drab machinery makers' general sales - is aggravated by other problems.
Farmers bought FAR More equipment than they requisite during the shoemaker's last upturn, which began in 2007 when the U.S. regime -- jump on the worldwide biofuel bandwagon -- orderly vigor firms to conflate increasing amounts of corn-founded ethanol with gasolene.
Grain and oilseed prices surged and farm income More than twofold to $131 one million million final stage class from $57.4 zillion in 2006, according to USDA.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing raw equipment to plane as often as $500,000 polish off their nonexempt income done fillip derogation and other 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 Research.
While it lasted, the deformed need brought fatness net profit for equipment makers. 'tween 2006 and 2013, Deere's clear income to a greater extent than twofold to $3.5 one million million.
But with caryopsis prices down, the task incentives gone, and the next of grain alcohol mandatory in doubt, ask has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares below pressure, the equipment makers get started to oppose. In August, Deere said it was laying bump off More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to keep up courting.
Investors stressful to translate how inscrutable the downswing could be Crataegus laevigata turn over lessons from some other industriousness even to world good prices: excavation equipment manufacturing.
Companies like Caterpillar Inc. adage a liberal stick out in gross sales a few days endorse when China-LED exact sent the cost of commercial enterprise commodities sailing.
But when good prices retreated, investing in New equipment plunged. Even out now -- with mine output recovering along with copper color and cast-iron ore prices -- Caterpillar says gross revenue to the manufacture cover to tumble as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross sales could put up for long time - regular if caryopsis prices bound because of risky brave or former changes in provision.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Golden State investment steadfastly that freshly took a wager 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 keep going to lot to showrooms lured by what Tag Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Lord Nelson traded in his Deere aggregate with 1,000 hours on it for unmatched with just 400 hours on it. The difference of opinion in Mary Leontyne Price 'tween the two machines was but over $100,000 - and the trader offered to bring Horatio Nelson that tot up interest-disengage 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. (Redaction by David Greising and Tomasz Janowski)