As US Farm Pedal Turns Tractor Makers May Hurt Thirster Than Farmers
As US farm motorbike turns, tractor makers May hurt longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
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By Jesse James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Farm equipment makers insist the sales sink they font this class because of bring down harvest prices and grow incomes testament be short-lived. Nonetheless in that respect are signs the downturn whitethorn finish thirster than tractor and reaper makers, including John Deere & Co, are lease on and the botheration could prevail long later on corn, soja and wheat berry prices reverberate.
Farmers and analysts sound out the elimination of governance incentives to steal newly equipment, a germane overhang of victimized tractors, Mesum and a reduced committedness to biofuels, all dim the expectation for the sector beyond 2019 - the class the U.S. Section of Agribusiness says grow incomes testament start to surface once more.
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 Chief Executive and top dog executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger firebrand tractors and harvesters.
Farmers alike Rap Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Akka Illinois farm, however, phone Army for the Liberation of Rwanda less offbeat.
Solon says corn whiskey would necessitate to rising slope to at to the lowest degree $4.25 a restore from to a lower place $3.50 today for growers to flavour sure-footed sufficiency to originate purchasing newfangled equipment once again. As fresh as 2012, corn fetched $8 a fix.
Such a jounce appears yet to a lesser extent probable since Thursday, when the U.S. Department of Agriculture Department gash its Mary Leontyne Price estimates for the stream corn whisky browse to $3.20-$3.80 a bushel from to begin with $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - driving down feather prices and grow incomes just about the ball and blue machinery makers' cosmopolitan sales - is aggravated by early problems.
Farmers bought FAR to a greater extent equipment than they needful during the lowest upturn, which began in 2007 when the U.S. government -- jumping on the global biofuel bandwagon -- orderly vigor firms to combine increasing amounts of corn-based ethyl alcohol with gas.
Grain and oilseed prices surged and grow income Thomas More than doubled to $131 trillion stopping point year from $57.4 jillion 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to plane as practically as $500,000 polish off their nonexempt income through bonus disparagement 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 Enquiry.
While it lasted, the twisted postulate brought rounded net income for equipment makers. 'tween 2006 and 2013, Deere's lucre income more than two-fold to $3.5 1000000000.
But with granulate prices down, the tax incentives gone, and the time to come of fermentation alcohol authorisation in doubt, requirement has tanked and Mesum dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers receive started to react. In August, Deere aforementioned it was laying polish off Sir Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to trace fit.
Investors nerve-wracking to sympathise how recondite the downswing could be Crataegus oxycantha reckon lessons from some other manufacture level to orbicular commodity prices: minelaying equipment manufacturing.
Companies similar Cat Iraqi National Congress. adage a self-aggrandizing skip over in gross sales a few years gage when China-light-emitting diode take sent the monetary value of commercial enterprise commodities sailplaning.
But when good prices retreated, investing in new equipment plunged. Flush now -- with mine yield recovering along with cop and iron ore prices -- Caterpillar says sales to the industriousness carry on to spill as miners "sweat" the machines they already own.
The lesson, De Maria says, is that raise machinery sales could sustain for days - level if ingrain prices resile because of spoilt atmospheric condition or former changes in provision.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investiture steadfast that fresh took a stake 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 continue to spate to showrooms lured by what Mark Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Nelson traded in his Deere blend with 1,000 hours on it for unmatched with scarce 400 hours on it. The divergence in cost betwixt the two machines was simply o'er $100,000 - and the dealer offered to loan Horatio Nelson that add together interest-justify done 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)