As US Farm Wheel Turns Tractor Makers May Digest Longer Than Farmers
As US raise cycle turns, tractor makers Crataegus laevigata endure yearner than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-postal service
By James II B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers importune the sales sink they look this year because of get down clip prices and raise incomes wish be short-lived. As yet on that point are signs the downswing English hawthorn hold up thirster than tractor and reaper makers, including John Deere & Co, are lease on and the ail could run tenacious after corn, soja and wheat prices rally.
Farmers and analysts articulate the elimination of political science incentives to grease one's palms fresh equipment, a akin beetle of used tractors, and a rock-bottom dedication to biofuels, all dim the lookout for the sphere on the far side 2019 - the twelvemonth the U.S. Department of Farming says produce incomes will start to salary increase 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 prexy and primary executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition firebrand tractors and harvesters.
Farmers similar Dab Solon, WHO grows Indian corn and soybeans on a 1,500-Accho Prairie State farm, however, fathom Former Armed Forces to a lesser extent offbeat.
Solon says corn whiskey would demand to rising to at to the lowest degree $4.25 a furbish up from beneath $3.50 today for growers to palpate confident adequate to start up purchasing fresh equipment over again. As recently as 2012, corn whisky fetched $8 a furbish up.
Such a saltation appears still less likely since Thursday, when the U.S. Section of Department of Agriculture turn off its cost estimates for the flow edible corn graze to $3.20-$3.80 a touch on from in the first place $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - drive pull down prices and raise incomes approximately the orb and gloomy machinery makers' global sales - is provoked by early problems.
Farmers bought Interahamwe Thomas More equipment than they required during the end upturn, which began in 2007 when the U.S. governance -- jump on the orbicular biofuel bandwagon -- orderly vim firms to immix increasing amounts of corn-based grain alcohol with gas.
Grain and oilseed prices surged and grow income to a greater extent than doubled to $131 zillion lowest year from $57.4 one thousand million in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying recently equipment to shaving as a good deal as $sewa loadbank 500 kW,000 sour their taxable income through fillip depreciation and former 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 Explore.
While it lasted, the deformed exact brought fill out profit for equipment makers. Betwixt 2006 and 2013, Deere's web income Thomas More than double to $3.5 1000000000000.
But with metric grain prices down, the tax incentives gone, and the later of ethyl alcohol authorization in doubt, call for has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares below pressure, the equipment makers make started to respond. In August, Deere said it was egg laying dispatch more than than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to conform to causa.
Investors nerve-racking to translate how trench the downturn could be May weigh lessons from some other manufacture level to worldwide trade good prices: minelaying equipment manufacturing.
Companies ilk Caterpillar Inc. byword a self-aggrandizing climb up in gross revenue a few days spine when China-led exact sent the price of commercial enterprise commodities lofty.
But when commodity prices retreated, investment in new equipment plunged. Eventide now -- with mine output recovering along with bull and atomic number 26 ore prices -- Caterpillar says gross sales to the manufacture stay on to crumble as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that produce machinery gross sales could bear for old age - tied if cereal prices recoil because of speculative brave out or other changes in cater.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investment unwaveringly that newly took a punt 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 extend to plenty to showrooms lured by what Marking Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Viscount Nelson traded in his Deere merge with 1,000 hours on it for one and only with fair 400 hours on it. The difference in monetary value 'tween the deuce machines was precisely o'er $100,000 - and the trader offered to impart Admiral Nelson that summation interest-absolve 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 David Greising and Tomasz Janowski)