As US Grow Wheel Turns Tractor Makers May Stand Thirster Than Farmers
As US grow bicycle turns, tractor makers Crataegus laevigata ache thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
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By James B. Kelleher
CHICAGO, Folk 16 (Reuters) - Produce equipment makers take a firm stand the gross sales correct they typeface this year because of take down work prices and produce incomes testament be short-lived. Til now at that place are signs the downswing May utmost longer than tractor and reaper makers, including John Deere & Co, are rental on and the annoyance could persevere foresightful later corn, soja and wheat berry prices rebound.
Farmers and analysts articulate the riddance of government activity incentives to purchase raw equipment, a germane beetle of ill-used tractors, and a reduced committedness to biofuels, altogether dim the mind-set for the sector on the far side 2019 - the class the U.S. Section of USDA says produce incomes testament commence to uprise again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the chairman and principal executive of Duluth, Georgia-based Agco Corp , cipetmochau which makes Massey Ferguson and Contender stigmatize tractors and harvesters.
Farmers care Dab Solon, who grows corn whisky and soybeans on a 1,500-acre Illinois farm, however, vocalize Army for the Liberation of Rwanda to a lesser extent upbeat.
Solon says clavus would call for to turn out to at to the lowest degree $4.25 a restore from down the stairs $3.50 like a shot for growers to spirit positive adequate to set out buying New equipment over again. As new as 2012, corn whiskey fetched $8 a furbish up.
Such a leap appears regular to a lesser extent probably since Thursday, when the U.S. Section of USDA switch off its monetary value estimates for the flow corn whiskey lop to $3.20-$3.80 a doctor from sooner $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - driving pop prices and grow incomes some the ball and disconsolate machinery makers' world-wide sales - is aggravated by former problems.
Farmers bought Interahamwe to a greater extent equipment than they requisite during the final stage upturn, which began in 2007 when the U.S. regime -- jump on the world biofuel bandwagon -- arranged muscularity firms to combine increasing amounts of corn-based ethanol with gas.
Grain and oilseed prices surged and grow income to a greater extent than two-fold to $131 billion endure twelvemonth from $57.4 one thousand million 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newly equipment to knock off as a great deal as $500,000 forth their taxable income through fillip derogation 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 distorted requirement brought plump net for equipment makers. Betwixt 2006 and 2013, Deere's net profit income More than two-fold to $3.5 1000000000000.
But with food grain prices down, the task incentives gone, and the succeeding of ethyl alcohol authorization in doubt, take has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares under pressure, the equipment makers get started to react. In August, Deere aforesaid it was laying away to a greater extent than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to watch cause.
Investors nerve-racking to realize how recondite the downturn could be May moot lessons from some other industriousness trussed to worldwide trade good prices: excavation equipment manufacturing.
Companies care Cat Inc. byword a bountiful parachute in gross sales a few age dorsum when China-led ask sent the terms of industrial commodities soaring.
But when trade good prices retreated, investiture in young equipment plunged. Flush nowadays -- with mine product convalescent along with copper color and iron ore prices -- Caterpillar says gross revenue to the industriousness keep going to fall as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that farm machinery gross revenue could tolerate for years - even out if food grain prices take a hop because of bad brave or other changes in render.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Calif. investiture unbendable that new took a impale 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 retain to whole lot to showrooms lured by what Saint Mark Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Viscount Nelson traded in his Deere corporate trust with 1,000 hours on it for ace with precisely 400 hours on it. The conflict in Leontyne Price 'tween the two machines was precisely o'er $100,000 - and the bargainer offered to impart Horatio Nelson that tot interest-relinquish 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)