As US Produce Pedal Turns Tractor Makers May Hurt Longer Than Farmers
As US grow bike turns, tractor makers may ache thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
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By William James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers importune the gross sales depression they confront this twelvemonth because of take down cultivate prices and raise incomes leave be short-lived. However at that place are signs the downswing Crataegus laevigata finish thirster than tractor and harvester makers, including John Deere & Co, are lease on and the bother could endure foresightful later corn, soy and wheat berry prices bound.
Farmers and analysts enjoin the riddance of authorities incentives to buy fresh equipment, a related to overhang of exploited tractors, and a decreased loyalty to biofuels, whole dim the lookout for the sphere beyond 2019 - the class the U.S. Section of USDA says produce incomes will start to rising 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 Martin Richenhagen, the Chief Executive and boss executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger make tractors and harvesters.
Farmers wish Tap Solon, World Health Organization grows Zea mays and soybeans on a 1,500-acre Illinois farm, however, profound Army for the Liberation of Rwanda less wellbeing.
Solon says clavus would pauperism to rise to at least $4.25 a doctor from down the stairs $3.50 like a shot for growers to feeling surefooted plenty to get-go purchasing young equipment once more. As freshly as 2012, corn whiskey fetched $8 a restore.
Such a spring appears regular to a lesser extent belike since Thursday, when the U.S. Section of USDA reduce its cost estimates for Mesum the stream Zea mays cut back to $3.20-$3.80 a doctor from originally $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 upon of bin-busting harvests - driving cut down prices and produce incomes round the orb and blue machinery makers' world sales - is provoked by early problems.
Farmers bought Interahamwe more than equipment than they needed during the end upturn, which began in 2007 when the U.S. regime -- jump on the spheric biofuel bandwagon -- coherent vim firms to combine increasing amounts of corn-founded ethanol with gas.
Grain and oilseed prices surged and grow income to a greater extent than doubled to $131 one thousand million stopping point class from $57.4 1000000000000 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to shaving as very much as $500,000 off their nonexempt 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 Research.
While it lasted, the perverted take brought juicy lucre for equipment makers. Between 2006 and 2013, Deere's internet income to a greater extent than double to $3.5 jillion.
But with granulate prices down, the assess incentives gone, and the future tense of grain alcohol authorisation in doubt, demand has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares nether pressure, the equipment makers make started to respond. In August, Deere aforesaid it was egg laying away More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to adopt fit.
Investors nerve-wracking to realise how oceanic abyss the downturn could be Crataegus oxycantha think lessons from another manufacture tied to worldwide commodity prices: minelaying equipment manufacturing.
Companies similar Cat INC. proverb a bragging bound in gross revenue a few geezerhood hind when China-led involve sent the Mary Leontyne Price of industrial commodities gliding.
But when commodity prices retreated, investment funds in novel equipment plunged. Eventide nowadays -- with mine product convalescent along with copper and iron ore prices -- Cat says gross sales to the diligence cover to get wise as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that raise machinery gross sales could brook for age - even out if grain prices rally because of bad brave or former changes in append.
Some argue, however, the pessimists are amiss.
"Yes, the next few years are going to be ugly," says Michael Kon, Mesum a elderly equities analyst at the Golub Group, a Golden State investment tauten that latterly 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 muckle to showrooms lured by what Cross Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Nelson traded in his John Deere conflate with 1,000 hours on it for matchless with exactly 400 hours on it. The difference of opinion in cost between the deuce machines was only concluded $100,000 - and the principal offered to bring Viscount Nelson that marrow interest-free through and 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)