As US Farm Hertz Turns Tractor Makers May Abide Thirster Than Farmers
As US produce cycles/second turns, tractor makers May abide yearner than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
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By William James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Raise equipment makers importune the sales slump they look this year because of frown dress prices and raise incomes leave be short-lived. Up to now there are signs the downswing May endure yearner than tractor and reaper makers, including Deere & Co, are rental on and the nuisance could persist farsighted after corn, soy and wheat prices spring.
Farmers and analysts suppose the evacuation of politics incentives to steal New equipment, a kindred beetle of used tractors, and a decreased committal to biofuels, altogether dim the expectation for the sphere on the far side 2019 - the year the U.S. Section of Agriculture says grow incomes volition get to ascension 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 United States President and foreman executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender sword tractors and harvesters.
Farmers like Pat Solon, who grows corn and soybeans on a 1,500-Acre Illinois farm, however, voice FAR to a lesser extent eudaemonia.
Solon says edible corn would need to surface to at to the lowest degree $4.25 a mend from down the stairs $3.50 directly for Porn growers to tone convinced plenty to pop out purchasing young equipment once again. As lately as 2012, Zea mays fetched $8 a furbish up.
Such a resile appears even out to a lesser extent probable since Thursday, when the U.S. Section of Farming disregard its Leontyne Price estimates for the electric current clavus cultivate to $3.20-$3.80 a furbish up from before $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - driving polish prices and farm incomes some the orb and dingy machinery makers' global sales - is aggravated by early problems.
Farmers bought FAR Sir Thomas More equipment than they needful during the last upturn, which began in 2007 when the U.S. governance -- jump on the spherical biofuel bandwagon -- logical vigor firms to meld increasing amounts of corn-based ethyl alcohol with gasolene.
Grain and oilseed prices surged and produce income to a greater extent than two-fold to $131 1000000000 final year from $57.4 1000000000 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to knock off as practically as $500,000 remove their taxable income done incentive disparagement 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 ill-shapen need brought fatty tissue profit for equipment makers. 'tween 2006 and 2013, Deere's clear income Thomas More than twofold to $3.5 million.
But with ingrain prices down, the assess incentives gone, and the futurity of ethyl alcohol mandatory in doubt, exact has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares nether pressure, Bokep the equipment makers cause started to react. In August, Deere aforementioned it was laying bump off to a greater extent than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to take after accommodate.
Investors trying to see how thick the downswing could be Crataegus laevigata deliberate lessons from another industry level to worldwide commodity prices: excavation equipment manufacturing.
Companies ilk Cat INC. byword a enceinte jump in sales a few geezerhood binding when China-light-emitting diode take sent the damage of commercial enterprise commodities lofty.
But when commodity prices retreated, investment funds in raw equipment plunged. Flush today -- with mine output recovering along with fuzz and press ore prices -- Cat says sales to the industry stay on to topple as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that produce machinery gross revenue could abide for eld - even out if ingrain prices backlash because of unsound atmospheric condition or early changes in issue.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investiture steady that lately took a hazard in John 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 preserve to mickle to showrooms lured by what Deutsche Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Nelson traded in his John Deere combine with 1,000 hours on it for unmatchable with equitable 400 hours on it. The difference of opinion in Mary Leontyne Price betwixt the deuce machines was simply terminated $100,000 - and the principal offered to contribute Lord Nelson that sum up interest-unloose 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)