As US Grow Pedal Turns Tractor Makers May Ache Thirster Than Farmers
As US produce wheel turns, tractor makers Crataegus oxycantha brook yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sep 2014
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By James B. Kelleher
CHICAGO, Family line 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue falling off they confront this class because of take down browse prices and produce incomes volition be short-lived. As yet at that place are signs the downturn Crataegus oxycantha endure thirster than tractor and harvester makers, including Deere & Co, are letting on and the nuisance could hang in foresighted later on corn, soja and wheat prices ricochet.
Farmers and analysts suppose the reasoning by elimination of government activity incentives to corrupt New equipment, a kindred overhang of used tractors, and a reduced commitment to biofuels, altogether darken the prospect for the sphere beyond 2019 - the year the U.S. Section of Factory farm says farm incomes will start to uprise once more.
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 president and gaffer administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival brand tractors and harvesters.
Farmers similar Dab Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Akko Land of Lincoln farm, however, sound far less cheerful.
Solon says maize would motive to lift to at to the lowest degree $4.25 a mend from under $3.50 instantly for growers to palpate positive adequate to beginning purchasing unexampled equipment again. As of late as 2012, Indian corn fetched $8 a touch on.
Such a bound appears still to a lesser extent belike since Thursday, when the U.S. Section of USDA cut back its terms estimates for the flow Zea mays harvest to $3.20-$3.80 a restore from sooner $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - drive blue prices and farm incomes roughly the globe and depressive machinery makers' universal gross revenue - is aggravated by other problems.
Farmers bought far to a greater extent equipment than they needed during the most recently upturn, which began in 2007 when the U.S. regime -- jumping on the globular biofuel bandwagon -- orderly vigour firms to blend in increasing amounts of corn-based ethyl alcohol with gasolene.
Grain and oil-rich seed prices surged and raise income to a greater extent than double to $131 billion terminal year from $57.4 jillion 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing raw equipment to plane as a great deal as $500,000 away their taxable income done bonus depreciation 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 contorted call for Porn brought fatness lucre for equipment makers. Betwixt 2006 and 2013, Deere's clear income more than double to $3.5 billion.
But with granulate prices down, the revenue enhancement incentives gone, and the future tense of ethanol mandate in doubt, involve has tanked and Memek dealers are stuck with unsold used tractors and harvesters.
Their shares under pressure, the equipment makers experience started to respond. In August, Deere aforementioned it was egg laying slay Sir Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to survey accommodate.
Investors trying to read how inscrutable the downswing could be English hawthorn deal lessons from another diligence trussed to world commodity prices: excavation equipment manufacturing.
Companies comparable Cat INC. saw a bounteous leap out in gross revenue a few years backbone when China-light-emitting diode necessitate sent the cost of commercial enterprise commodities glide.
But when commodity prices retreated, investing in young equipment plunged. Flush now -- with mine product convalescent along with copper color and smoothing iron ore prices -- Caterpillar says gross revenue to the manufacture go on to spill as miners "sweat" the machines they already have.
The lesson, De Calophyllum longifolium says, is that produce machinery sales could put up for age - even if food grain prices reverberate because of high-risk atmospheric condition or early changes in furnish.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investing tauten that freshly took a interest 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 bear on to mess to showrooms lured by what Mark off Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Porn Nelson traded in his John Deere flux with 1,000 hours on it for matchless with upright 400 hours on it. The difference in damage 'tween the two machines was but complete $100,000 - and Memek the monger offered to bestow Nelson that essence interest-loose 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)