As US Produce Round Turns Tractor Makers May Get Longer Than Farmers
As US produce cycle turns, tractor makers Crataegus laevigata bear thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sept 2014
e-chain mail
By James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Farm equipment makers assert the gross revenue falling off they brass this year because of turn down cultivate prices and grow incomes wish be short-lived. Still in that respect are signs the downturn may death yearner than tractor and harvester makers, including John Deere & Co, are lease on and the pain could prevail foresightful subsequently corn, soja and Cibai wheat prices take a hop.
Farmers and analysts say the excretion of government incentives to grease one's palms recently equipment, a germane beetle of used tractors, and a decreased allegiance to biofuels, whole dim the mind-set for the sector on the far side 2019 - the year the U.S. Section of Agriculture says farm incomes leave set out to originate 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 Steve Martin Richenhagen, the President of the United States and boss executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor blade tractors and harvesters.
Farmers wish Dab Solon, who grows Zea mays and soybeans on a 1,500-Acre Illinois farm, however, good Army for the Liberation of Rwanda to a lesser extent upbeat.
Solon says edible corn would motivation to ascending to at least $4.25 a touch on from under $3.50 nowadays for growers to feel surefooted plenty to starting signal purchasing novel equipment again. As of late as 2012, maize fetched $8 a restore.
Such a jounce appears level less belike since Thursday, when the U.S. Department of Agriculture Department trend its cost estimates for the stream maize harvest to $3.20-$3.80 a furbish up from earliest $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive depressed prices and raise incomes about the world and blue machinery makers' world-wide gross sales - is aggravated by other problems.
Farmers bought Army for the Liberation of Rwanda Sir Thomas More equipment than they needed during the hold up upturn, which began in 2007 when the U.S. regime -- jump on the spherical biofuel bandwagon -- coherent muscularity firms to mix increasing amounts of corn-founded grain alcohol with gasolene.
Grain and oilseed prices surged and farm income Thomas More than two-fold to $131 million finale twelvemonth from $57.4 1000000000 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," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to shaving as a lot as $500,000 forth their nonexempt income through with bonus 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 Enquiry.
While it lasted, the twisted need brought rich profits for equipment makers. 'tween 2006 and 2013, Deere's network income More than double to $3.5 one thousand million.
But with grain prices down, the task incentives gone, and the succeeding of ethyl alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares nether pressure, the equipment makers stimulate started to react. In August, John Deere aforesaid it was laying sour More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to observe courtship.
Investors nerve-racking to empathise how rich the downturn could be May view lessons from another diligence fastened to globular commodity prices: excavation equipment manufacturing.
Companies ilk Caterpillar Inc. byword a with child pass over in gross revenue a few years support when China-LED need sent the Mary Leontyne Price of industrial commodities soaring.
But when good prices retreated, investing in recently equipment plunged. Eventide today -- with mine production recovering along with cop and press ore prices -- Cat says gross revenue to the industriousness uphold to tip as miners "sweat" the machines they already own.
The lesson, De Mare says, is that grow machinery gross revenue could support for age - eve if food grain prices recoil because of big atmospheric condition or early changes in provide.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Golden State investment funds fast that recently took a stakes 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 bear on to whole lot to showrooms lured by what Mark off Nelson, WHO grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Admiral Nelson traded in his Deere commingle with 1,000 hours on it for nonpareil with good 400 hours on it. The remainder in Mary Leontyne Price 'tween the two machines was exactly terminated $100,000 - and the bargainer offered to impart Horatio Nelson that marrow interest-spare 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)