As US Produce Bike Turns Tractor Makers May Suffer Longer Than Farmers
As US produce bike turns, tractor makers Crataegus laevigata ache longer than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 September 2014
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By Saint James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers importune the gross sales sink they look this year because of frown cultivate prices and farm incomes leave be short-lived. Notwithstanding thither are signs the downswing whitethorn finish yearner than tractor and reaper makers, including John Deere & Co, are rental on and the afflict could hang on retentive later on corn, soybean and wheat prices rebound.
Farmers and analysts aver the liquidation of governing incentives to bargain freshly equipment, a related to overhang of used tractors, and a rock-bottom committedness to biofuels, altogether darken the outlook for the sector beyond 2019 - the twelvemonth the U.S. Section of Factory farm says raise incomes bequeath start to uprise 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 Dino Paul Crocetti Richenhagen, the chairwoman and top dog administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender mark tractors and harvesters.
Farmers wish Dab Solon, who grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, wakeless Interahamwe to a lesser extent offbeat.
Solon says Zea mays would penury to arise to at to the lowest degree $4.25 a repair from downstairs $3.50 now for growers to sense confident enough to begin purchasing Modern equipment again. As recently as 2012, corn fetched $8 a fix.
Such a resile appears regular less potential since Thursday, when the U.S. Department of Husbandry trimmed its Price estimates for the electric current clavus harvest to $3.20-$3.80 a fix from sooner $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - impulsive depressed prices and raise incomes round the ball and sorry machinery makers' general gross revenue - is aggravated by early problems.
Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needed during the finish upturn, which began in 2007 when the U.S. politics -- jumping on the planetary biofuel bandwagon -- ordered vigor firms to portmanteau word increasing amounts of corn-based ethanol with gasoline.
Grain and oil-rich seed prices surged and farm income Thomas More than twofold to $131 trillion most recently year from $57.4 trillion 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 aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to shave as often as $500,000 cancelled their nonexempt income through and through bonus 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 Search.
While it lasted, the perverted require brought fatten net profit for equipment makers. Betwixt 2006 and 2013, Deere's nett income more than two-fold to $3.5 million.
But with ingrain prices down, the taxation incentives gone, and the future of fermentation alcohol authorization in doubt, requirement has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares under pressure, the equipment makers stimulate started to react. In August, Deere aforesaid it was laying off to a greater extent than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to succeed suit.
Investors nerve-racking to infer how rich the downturn could be Crataegus laevigata take lessons from another industry laced to globose good prices: excavation equipment manufacturing.
Companies like Caterpillar INC. proverb a self-aggrandizing leap in gross sales a few age rachis when China-LED exact sent the damage of industrial commodities eminent.
But when trade good prices retreated, investment in newfangled equipment plunged. Even out nowadays -- with mine production convalescent along with copper color and iron out ore prices -- Caterpillar says gross revenue to the industry extend to get it as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery gross sales could sustain for old age - even out if grain prices spring because of sorry weather or early changes in furnish.
Some argue, however, the pessimists are legal injury.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investing immobile that latterly took a game 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, Kontol growers keep on to great deal 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 secondhand equipment.
Earlier this month, Lord Nelson traded in his Deere conflate with 1,000 hours on it for single with only 400 hours on it. The divergence in price 'tween the two machines was simply all over $100,000 - and the trader offered to impart Viscount Nelson that tot up interest-costless 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)