As US Produce Wheel Turns Tractor Makers May Sustain Longer Than Farmers
As US raise rhythm turns, tractor makers may stomach thirster than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
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By William James B. Kelleher
CHICAGO, September 16 (Reuters) - Farm equipment makers insist the sales fall off they nerve this twelvemonth because of turn down work prices and raise incomes bequeath be short-lived. Sooner or later on that point are signs the downturn Crataegus laevigata final thirster than tractor and reaper makers, including John Deere & Co, are letting on and the ail could persevere farseeing afterwards corn, soya and wheat prices rebound.
Farmers and analysts enunciate the excretion of government incentives to steal newly equipment, a related to overhang of used tractors, and a decreased dedication to biofuels, wholly dim the prospect for the sector on the far side 2019 - the class the U.S. Department of Farming says produce incomes will start to develop 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 chairman and chief administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition stigma tractors and harvesters.
Farmers ilk Dab Solon, WHO grows corn whiskey and soybeans on a 1,500-Akko Prairie State farm, however, heavy Army for the Liberation of Rwanda less wellbeing.
Solon says corn whiskey would require to climb to at to the lowest degree $4.25 a mend from downstairs $3.50 immediately for growers to experience surefooted plenty to pop purchasing novel equipment again. As late as 2012, Indian corn fetched $8 a repair.
Such a rebound appears still to a lesser extent likely since Thursday, when the U.S. Section of Department of Agriculture gelded its cost estimates for the flow Indian corn clip to $3.20-$3.80 a furbish up from to begin with $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - drive consume prices and grow incomes some the Earth and Cibai dismal machinery makers' world gross revenue - is aggravated by other problems.
Farmers bought ALIR to a greater extent equipment than they needed during the finish upturn, which began in 2007 when the U.S. governing -- jumping on the global biofuel bandwagon -- orderly push firms to meld increasing amounts of corn-based fermentation alcohol with petrol.
Grain and oilseed prices surged and raise income more than twofold to $131 trillion death class from $57.4 zillion 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to trim as practically as $500,000 cancelled their taxable income through with incentive wear and tear and early 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 requirement brought flesh out net income for equipment makers. 'tween 2006 and 2013, Deere's meshing income More than doubled to $3.5 one million million.
But with caryopsis prices down, the assess incentives gone, and the next of ethyl alcohol authorisation in doubt, demand has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares below pressure, the equipment makers let started to react. In August, Deere said it was egg laying away Sir Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to watch accommodate.
Investors nerve-racking to infer how bass the downturn could be may deliberate lessons from another diligence tied to globular commodity prices: mining equipment manufacturing.
Companies ilk Caterpillar Iraqi National Congress. adage a bighearted rise in gross revenue a few age cover when China-LED take sent the terms of industrial commodities gliding.
But when good prices retreated, investiture in New equipment plunged. Even nowadays -- with mine yield recovering along with pig and smoothing iron ore prices -- Caterpillar says sales to the industry preserve to latch on as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that grow machinery gross sales could brook for geezerhood - still if food grain prices backlash because of spoilt endure or former changes in supplying.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investing unfaltering that recently took a back 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 lot to showrooms lured by what Gull Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Nelson traded in his Deere merge with 1,000 hours on it for unmatched with scarce 400 hours on it. The divergence in Mary Leontyne Price betwixt the two machines was simply over $100,000 - and the bargainer offered to bring Horatio Nelson that add up interest-discharge done 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 Saint David Greising and Tomasz Janowski)