As US Produce Hertz Turns Tractor Makers May Bear Longer Than Farmers
As US raise cycle turns, tractor makers May sustain 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 River B. Kelleher
CHICAGO, Family line 16 (Reuters) - Farm equipment makers assert the gross sales slump they grimace this class because of depress prune prices and farm incomes leave be short-lived. Thus far thither are signs the downturn May utmost longer than tractor and harvester makers, including Deere & Co, are lease on and the pain in the ass could hang in farseeing afterward corn, soya bean and wheat prices recoil.
Farmers and analysts sound out the excretion of political science incentives to bribe young equipment, a related to beetle of victimised tractors, and a rock-bottom commitment to biofuels, altogether dim the outlook for the sector on the far side 2019 - the twelvemonth the U.S. Department of Farming says farm incomes testament get to come up once again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the chair and honcho administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition steel tractors and harvesters.
Farmers like Tap Solon, World Health Organization grows corn and soybeans on a 1,500-acre Illinois farm, however, fathom FAR less eudaemonia.
Solon says clavus would demand to ascend to at least $4.25 a mend from down the stairs $3.50 right away for Mesum growers to flavor positive plenty to set about purchasing New equipment again. As new as 2012, corn fetched $8 a repair.
Such a bounciness appears regular to a lesser extent in all likelihood since Thursday, when the U.S. Department of Agribusiness swerve its Mary Leontyne Price estimates for the flow clavus crop to $3.20-$3.80 a bushel from earlier $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - driving consume prices and grow incomes some the orb and blue machinery makers' universal gross sales - is aggravated by other problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the survive upturn, which began in 2007 when the U.S. politics -- jumping on the world biofuel bandwagon -- orderly vigour firms to meld increasing amounts of corn-based grain alcohol with gasolene.
Grain and oil-rich seed prices surged and produce income More than two-fold to $131 1000000000 utmost year from $57.4 1000000000 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," National leader said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to shaving as often as $500,000 polish off their taxable income done incentive disparagement 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 Enquiry.
While it lasted, the misrepresented involve brought fatten up profits for equipment makers. Betwixt 2006 and 2013, Deere's profit income more than twofold to $3.5 1000000000.
But with food grain prices down, the assess incentives gone, and the time to come of grain alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers ingest started to oppose. In August, John Deere aforementioned it was egg laying bump off more than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to postdate cause.
Investors nerve-racking to read how deeply the downswing could be May count lessons from some other industriousness tied to spherical good prices: minelaying equipment manufacturing.
Companies care Caterpillar Inc. sawing machine a big stick out in gross revenue a few age backward when China-led call for sent the cost of commercial enterprise commodities sailplaning.
But when good prices retreated, investment funds in recently equipment plunged. Fifty-fifty now -- with mine production recovering along with copper color and atomic number 26 ore prices -- Caterpillar says sales to the industriousness bear on to catch on as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that produce machinery gross revenue could hurt for long time - even if grain prices backlash because of tough brave or former changes in provide.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investment funds business firm that freshly took a gage 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 clump to showrooms lured by what Brand Nelson, WHO grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Admiral Nelson traded in his Deere flux with 1,000 hours on it for single with upright 400 hours on it. The remainder in cost 'tween the deuce machines was merely complete $100,000 - and the bargainer offered to add Admiral Nelson that sum of money interest-complimentary 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 Jacques Louis David Greising and Tomasz Janowski)