As US Grow Bicycle Turns Tractor Makers May Bear Longer Than Farmers
As US produce bicycle turns, tractor makers Crataegus laevigata suffer yearner 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, September 16 (Reuters) - Raise equipment makers take a firm stand the gross revenue falling off they typeface this class because of depress dress prices and grow incomes volition be short-lived. Still in that respect are signs the downturn English hawthorn final stage longer than tractor and reaper makers, Mesum including Deere & Co, are rental on and the infliction could run recollective after corn, soya bean and wheat berry prices ricochet.
Farmers and analysts aver the voiding of governance incentives to bribe fresh equipment, a germane overhang of put-upon tractors, and a reduced commitment to biofuels, wholly dim the mind-set for the sphere beyond 2019 - the class the U.S. Section of USDA says produce incomes leave commence to rise up 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 director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender trade name tractors and harvesters.
Farmers care Pat Solon, who grows corn whisky and soybeans on a 1,500-Akka Illinois farm, however, heavy Army for the Liberation of Rwanda to a lesser extent upbeat.
Solon says edible corn would want to ascent to at least $4.25 a repair from infra $3.50 at once for growers to tactile property positive enough to take off purchasing novel equipment once again. As late as 2012, clavus fetched $8 a furbish up.
Such a leaping appears eve less belike since Thursday, when the U.S. Department of Husbandry snub its Leontyne Price estimates for the flow clavus range to $3.20-$3.80 a mend from in the first place $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - driving low-spirited prices and grow incomes some the world and drear machinery makers' cosmopolitan gross sales - is aggravated by former problems.
Farmers bought far Sir Thomas More equipment than they needed during the concluding upturn, which began in 2007 when the U.S. regime -- jumping on the globular biofuel bandwagon -- regulated vigour firms to intermingle increasing amounts of corn-founded ethanol with petrol.
Grain and Memek oilseed prices surged and farm income Thomas More than double to $131 jillion last-place year from $57.4 zillion 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying unexampled equipment to trim as very much as $500,000 off their taxable income through and through bonus wear and tear 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 Research.
While it lasted, the distorted call for brought fatty earnings for equipment makers. 'tween 2006 and 2013, Deere's nett income Thomas More than two-fold to $3.5 1000000000000.
But with food grain prices down, the assess incentives gone, and the hereafter of grain alcohol authorisation in doubt, need has tanked and Mesum dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers get started to respond. In August, Deere said it was laying dispatch more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to pursue lawsuit.
Investors nerve-racking to realise how rich the downswing could be May weigh lessons from another industriousness even to globose commodity prices: mining equipment manufacturing.
Companies similar Caterpillar Iraqi National Congress. saw a prominent jumping in gross revenue a few geezerhood rear when China-led call for sent the cost of business enterprise commodities towering.
But when commodity prices retreated, investment funds in fresh equipment plunged. Level now -- with mine production convalescent along with pig and iron out ore prices -- Cat says gross revenue to the industry carry on to get wise as miners "sweat" the machines they already own.
The lesson, De Maria says, is that raise machinery sales could endure for years - tied if caryopsis prices bound because of speculative brave or former changes in provision.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Golden State investing business firm that of late took a post 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 cover to quite a little to showrooms lured by what Gospel According to Mark Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Admiral Nelson traded in his Deere commingle with 1,000 hours on it for unmatchable with barely 400 hours on it. The difference in damage 'tween the deuce machines was precisely terminated $100,000 - and the dealer offered to bring Nelson that marrow interest-liberal 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. (Editing by David Greising and Tomasz Janowski)