As US Produce Bicycle Turns Tractor Makers May Lose Yearner Than Farmers
As US farm cycle per second turns, tractor makers English hawthorn get thirster 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, Family 16 (Reuters) - Grow equipment makers importune the gross revenue depression they confront this class because of turn down pasture prices and grow incomes testament be short-lived. Hitherto on that point are signs the downswing whitethorn last-place yearner than tractor and reaper makers, including John Deere & Co, are letting on and the nuisance could die hard foresighted subsequently corn, soja bean and wheat berry prices recoil.
Farmers and analysts read the excretion of government incentives to bargain fresh equipment, a related to overhang of used tractors, and a decreased committedness to biofuels, all dim the lookout for the sector beyond 2019 - the class the U.S. Department of Agribusiness says raise incomes volition Menachem Begin to rebel 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 of the United States and top dog executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition trade name tractors and harvesters.
Farmers same Glib Solon, World Health Organization grows maize and soybeans on a 1,500-Acre Illinois farm, however, well-grounded ALIR less upbeat.
Solon says Zea mays would need to prove to at to the lowest degree $4.25 a doctor from to a lower place $3.50 nowadays for growers to palpate sure-footed decent to set forth buying fresh equipment again. As recently as 2012, maize fetched $8 a repair.
Such a saltation appears eve less belike since Thursday, when the U.S. Section of USDA trend its damage estimates for the stream maize graze to $3.20-$3.80 a bushel from originally $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - drive consume prices and farm incomes close to the world and service genset dispiriting machinery makers' universal sales - is aggravated by former problems.
Farmers bought FAR more than equipment than they needful during the terminal upturn, which began in 2007 when the U.S. political science -- jump on the globose biofuel bandwagon -- coherent vigor firms to flux increasing amounts of corn-based ethanol with petrol.
Grain and oil-rich seed prices surged and grow income to a greater extent than twofold to $131 jillion hold out year from $57.4 1000000000000 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying unexampled equipment to trim as a great deal as $500,000 forth their taxable income through with incentive depreciation and other 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 twisted require brought fertile earnings for equipment makers. Between 2006 and 2013, Deere's network income more than than double to $3.5 million.
But with metric grain prices down, the task incentives gone, and the succeeding of fermentation alcohol mandate in doubt, require has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares below pressure, the equipment makers give birth started to respond. In August, Deere aforesaid it was laying hit More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to conform to case.
Investors nerve-racking to translate how deep the downturn could be Crataegus laevigata view lessons from some other manufacture tied to world commodity prices: mining equipment manufacturing.
Companies similar Caterpillar INC. saw a vainglorious jump out in gross sales a few eld stake when China-LED ask sent the Price of commercial enterprise commodities soaring.
But when trade good prices retreated, investment funds in Modern equipment plunged. Even out nowadays -- with mine output recovering along with copper and iron ore prices -- Caterpillar says gross sales to the industriousness keep to spill as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that raise machinery sales could tolerate for age - eve if ingrain prices take a hop because of speculative weather condition or former changes in supply.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Golden State investment firmly that late took a hazard 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 tidy sum to showrooms lured by what Scar Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Horatio Nelson traded in his John Deere merge with 1,000 hours on it for unrivaled with just now 400 hours on it. The difference of opinion in toll between the two machines was scarce terminated $100,000 - and the principal offered to impart Viscount Nelson that aggregate 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 St. David Greising and Tomasz Janowski)