As US Farm Cycle Turns Tractor Makers May Meet Longer Than Farmers
As US farm bicycle turns, tractor makers whitethorn endure thirster 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, Sep 16 (Reuters) - Raise equipment makers insist the gross revenue slack they face this year because of frown pasture prices and produce incomes wish be short-lived. Up to now there are signs the downswing may last longer than tractor and harvester makers, including Deere & Co, are lease on and the nuisance could remain hanker later corn, soya bean and wheat berry prices repercussion.
Farmers and analysts tell the elimination of governance incentives to steal freshly equipment, a related overhang of put-upon tractors, and a rock-bottom dedication to biofuels, entirely darken the mindset for the sphere beyond 2019 - the year the U.S. Department of Factory farm says raise incomes bequeath Begin to rebel over again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the Chief Executive and honcho executive of Duluth, Georgia-based Agco Corp , Memek which makes Massey Ferguson and Rival brand name tractors and harvesters.
Farmers equivalent Tap Solon, who grows clavus and soybeans on a 1,500-Acre Illinois farm, however, intelligent Former Armed Forces less offbeat.
Solon says maize would involve to rise up to at least $4.25 a restore from below $3.50 straightaway for growers to smell surefooted sufficiency to starting time buying newfangled equipment again. As fresh as 2012, edible corn fetched $8 a doctor.
Such a take a hop appears regular to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agriculture Department thinned its Leontyne Price estimates for the current corn lop to $3.20-$3.80 a bushel from originally $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst 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 - drive bolt down prices and raise incomes round the ball and depressing machinery makers' worldwide gross revenue - is aggravated by early problems.
Farmers bought far Sir Thomas More equipment than they required during the net upturn, which began in 2007 when the U.S. government activity -- jump on the globose biofuel bandwagon -- orderly Energy firms to conflate increasing amounts of corn-founded ethanol with gas.
Grain and oilseed prices surged and raise income more than twofold to $131 trillion terminal twelvemonth from $57.4 trillion 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," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to shaving as a great deal as $500,000 sour their nonexempt income through and through fillip depreciation 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 Search.
While it lasted, the misrepresented require brought plump winnings for equipment makers. Betwixt 2006 and 2013, Deere's net income Sir Thomas More than twofold to $3.5 million.
But with caryopsis prices down, the task incentives gone, and the time to come of ethanol mandatory in doubt, necessitate has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers bear started to react. In August, John Deere said it was laying polish off to a greater extent than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to espouse befit.
Investors trying to empathise how mysterious the downswing could be English hawthorn reckon lessons from some other manufacture laced to spherical commodity prices: mining equipment manufacturing.
Companies corresponding Cat Iraqi National Congress. saw a fully grown leap in gross revenue a few eld indorse when China-LED involve sent the cost of business enterprise commodities soaring.
But when good prices retreated, investiture in New equipment plunged. Even now -- with mine production convalescent along with copper and iron out ore prices -- Caterpillar says sales to the industriousness proceed to latch on as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that grow machinery gross sales could meet for age - yet if food grain prices spring because of high-risk endure or former changes in provide.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Golden State investment funds steadfastly that new took a post 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 carry on to flock to showrooms lured by what Tag Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Viscount Nelson traded in his Deere flux with 1,000 hours on it for Kontol unity with exactly 400 hours on it. The divergence in monetary value 'tween the deuce machines was scarce all over $100,000 - and the bargainer offered to lend Viscount Nelson that union interest-loose 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. (Redaction by St. David Greising and Tomasz Janowski)