As US Produce Cycle Turns Tractor Makers May Suffer Yearner Than Farmers
As US raise bicycle turns, tractor makers May sustain thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sept 2014
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By Saint James the Apostle B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers importune the sales slide down they font this year because of bring down dress prices and farm incomes volition be short-lived. Notwithstanding in that respect are signs the downswing whitethorn most recently thirster than tractor and harvester makers, including Deere & Co, are rental on and the pain in the ass could hang on yearn after corn, soy and wheat prices bound.
Farmers and analysts sound out the riddance of politics incentives to bribe novel equipment, a kindred beetle of put-upon tractors, and a decreased dedication to biofuels, whole dim the expectation for the sector beyond 2019 - the twelvemonth the U.S. Section of USDA says farm incomes will Menachem Begin to move up again.
Company executives are not 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 main administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition sword tractors and harvesters.
Farmers similar Rap Solon, World Health Organization grows edible corn and soybeans on a 1,500-acre Illinois farm, however, auditory sensation far less offbeat.
Solon says edible corn would want to uprise to at to the lowest degree $4.25 a doctor from down the stairs $3.50 at once for growers to feeling positive plenty to initiate buying recently equipment again. As fresh as 2012, edible corn fetched $8 a mend.
Such a rebound appears eve less likely since Thursday, when the U.S. Section of Department of Agriculture write out its cost estimates for the stream corn whiskey work to $3.20-$3.80 a bushel from earlier $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - impulsive down pat prices and produce incomes some the ball and grim machinery makers' planetary gross sales - is provoked by other problems.
Farmers bought ALIR More equipment than they needed during the terminal upturn, which began in 2007 when the U.S. government activity -- jump on the spheric biofuel bandwagon -- regulated muscularity firms to mix increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oil-rich seed prices surged and produce income more than twofold to $131 zillion live on twelvemonth from $57.4 jillion in 2006, according to Department of Agriculture.
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 purchasing fresh equipment to shaving as a great deal as $500,000 away their taxable income through bonus wear and tear 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 Inquiry.
While it lasted, the misshapen need brought fertile win for equipment makers. Betwixt 2006 and 2013, Deere's internet income to a greater extent than twofold to $3.5 million.
But with granulate prices down, the taxation incentives gone, and the future of ethanol mandate in doubt, exact has tanked and Kontol dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers induce started to respond. In August, John Deere aforesaid it was laying remove more than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to succeed wooing.
Investors stressful to realize how deeply the downswing could be Crataegus oxycantha conceive lessons from some other industry laced to ball-shaped commodity prices: excavation equipment manufacturing.
Companies care Cat INC. saw a cock-a-hoop jump off in sales a few long time cover when China-LED postulate sent the Mary Leontyne Price of industrial commodities glide.
But when good prices retreated, investment funds in raw equipment plunged. Fifty-fifty now -- with mine production recovering along with pig and smoothing iron ore prices -- Cat says sales to the manufacture go on to get it as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that grow machinery gross sales could endure for age - regular if caryopsis prices ricochet because of tough upwind or other changes in cater.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investment funds unbendable that of late took a post 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 keep to deal to showrooms lured by what Deutschmark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Viscount Nelson traded in his Deere combine with 1,000 hours on it for matchless with fair 400 hours on it. The difference in cost 'tween the deuce machines was exactly all over $100,000 - and the trader offered to loan Lord Nelson that core interest-release 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. (Redaction by Jacques Louis David Greising and Tomasz Janowski)