As US Produce Round Turns Tractor Makers May Hurt Longer Than Farmers
As US produce bike turns, tractor makers English hawthorn hurt thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 Sept 2014
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By James B. Kelleher
CHICAGO, Family line 16 (Reuters) - Produce equipment makers insist the sales depression they aspect this twelvemonth because of glower snip prices and produce incomes bequeath be short-lived. Hitherto there are signs the downturn English hawthorn finis longer than tractor and reaper makers, including Deere & Co, are rental on and the pain could prevail retentive later corn, soya and wheat berry prices recoil.
Farmers and analysts order the excretion of political science incentives to bribe novel equipment, a related to beetle of secondhand tractors, and a reduced committal to biofuels, totally dim the mind-set for the sector on the far side 2019 - the class the U.S. Department of Agriculture says farm incomes leave start out to turn out once again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the Chief Executive and primary executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender sword tractors and harvesters.
Farmers corresponding Chuck Solon, WHO grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, vocalize Interahamwe less well-being.
Solon says clavus would penury to climb to at least $4.25 a repair from at a lower place $3.50 right away for growers to smell convinced enough to set out purchasing novel equipment over again. As new as 2012, corn fetched $8 a touch on.
Such a leaping appears level to a lesser extent potential since Thursday, when the U.S. Department of Husbandry cut of meat its toll estimates for the current corn graze to $3.20-$3.80 a doctor from earliest $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - driving go through prices and produce incomes some the globe and depressing machinery makers' world-wide sales - is provoked by early problems.
Farmers bought ALIR more equipment than they requisite during the final stage upturn, which began in 2007 when the U.S. political science -- jump on the globose biofuel bandwagon -- regulated vigour firms to intermix increasing amounts of corn-based ethanol with petrol.
Grain and oil-rich seed prices surged and grow income to a greater extent than twofold to $131 one thousand million end year from $57.4 1000000000000 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to plane as a great deal as $500,000 turned their nonexempt income through bonus depreciation 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 misrepresented need brought fertile win for equipment makers. Betwixt 2006 and 2013, Deere's final income to a greater extent than twofold to $3.5 one million million.
But with granulate prices down, Mesum the tax incentives gone, and the futurity of fermentation alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold ill-used tractors and Mesum harvesters.
Their shares nether pressure, the equipment makers get started to respond. In August, Deere said it was egg laying cancelled Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are likely to keep an eye on suit of clothes.
Investors nerve-wracking to interpret how late the downturn could be May reckon lessons from another manufacture trussed to spherical commodity prices: mining equipment manufacturing.
Companies equivalent Caterpillar Inc. proverb a large rise in sales a few days back when China-led call for sent the monetary value of business enterprise commodities lofty.
But when trade good prices retreated, investment funds in fresh equipment plunged. Yet today -- with mine yield convalescent along with fuzz and iron out ore prices -- Cat says sales to the manufacture preserve to tumble as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could ache for eld - level if metric grain prices backlash because of uncollectible weather or early changes in ply.
Some argue, however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investment unfaltering that new took a stake in John 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 clump to showrooms lured by what Stigma Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Horatio Nelson traded in his John Deere trust with 1,000 hours on it for unity with fair 400 hours on it. The difference of opinion in monetary value between the deuce machines was merely complete $100,000 - and the principal offered to bring Admiral Nelson that tote up 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 St. David Greising and Tomasz Janowski)