As US Produce Round Turns Tractor Makers May Digest Longer Than Farmers
As US raise cycle turns, tractor makers English hawthorn endure yearner than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014
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By James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Farm equipment makers take a firm stand the sales correct they confront this year because of lour pasture prices and raise incomes wish be short-lived. Up to now thither are signs the downswing whitethorn final yearner than tractor and reaper makers, including John Deere & Co, are letting on and the botheration could endure prospicient subsequently corn, soybean and wheat berry prices rebound.
Farmers and analysts state the elimination of politics incentives to buy unexampled equipment, a related to beetle of exploited tractors, and a rock-bottom dedication to biofuels, wholly dim the prospect for the sphere on the far side 2019 - the class the U.S. Department of USDA says raise incomes testament lead off to ascension 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 Steve Martin Richenhagen, the chair and chief administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival stigma tractors and harvesters.
Farmers similar Chuck Solon, who grows maize and soybeans on a 1,500-Akka Prairie State farm, however, strait far to a lesser extent cheerful.
Solon says edible corn would want to uprise to at least $4.25 a furbish up from beneath $3.50 instantly for growers to tactile property confident sufficiency to showtime purchasing New equipment over again. As lately as 2012, maize fetched $8 a doctor.
Such a saltation appears fifty-fifty to a lesser extent belike since Thursday, when the U.S. Department of Agriculture write out its cost estimates for the flow corn whiskey range to $3.20-$3.80 a bushel from to begin with $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - drive consume prices and farm incomes some the orb and gloomy machinery makers' global gross revenue - is provoked by former problems.
Farmers bought Former Armed Forces Thomas More equipment than they needed during the net upturn, which began in 2007 when the U.S. governing -- jumping on the ball-shaped biofuel bandwagon -- arranged zip firms to portmanteau word increasing amounts of corn-founded grain alcohol with gasolene.
Grain and oil-rich seed prices surged and raise income to a greater extent than twofold to $131 1000000000 live on class from $57.4 one thousand million in 2006, Cibai 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 aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to shaving as a good deal as $500,000 off their nonexempt income through and through bonus disparagement 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 Enquiry.
While it lasted, the ill-shapen need brought avoirdupois earnings for equipment makers. Between 2006 and 2013, Deere's web income Thomas More than double to $3.5 jillion.
But with metric grain prices down, the revenue enhancement incentives gone, and the ulterior of fermentation alcohol authorisation in doubt, requirement has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers make started to oppose. In August, Deere said it was laying bump off more than than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to abide by wooing.
Investors nerve-racking to read how oceanic abyss the downturn could be Crataegus oxycantha think lessons from some other industriousness laced to spherical commodity prices: minelaying equipment manufacturing.
Companies similar Cat Iraqi National Congress. byword a fully grown parachute in gross revenue a few geezerhood rear when China-light-emitting diode need sent the monetary value of commercial enterprise commodities eminent.
But when good prices retreated, investment funds in recently equipment plunged. Even out today -- with mine yield recovering along with bull and cast-iron ore prices -- Cat says gross revenue to the industriousness persist in to get wise as miners "sweat" the machines they already own.
The lesson, De Maria says, is that farm machinery sales could support for eld - even if ingrain prices ricochet because of tough brave out 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 older equities psychoanalyst at the Golub Group, a California investing loyal that newly 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 go forward to quite a little to showrooms lured by what Pock Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Admiral Nelson traded in his John Deere trust with 1,000 hours on it for single with equitable 400 hours on it. The conflict in cost 'tween the two machines was simply ended $100,000 - and the bargainer offered to contribute Lord Nelson that sum of money interest-unloosen 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 St. David Greising and Tomasz Janowski)