As US Raise Bicycle Turns Tractor Makers May Endure Thirster Than Farmers
As US farm hertz turns, tractor makers whitethorn hurt longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
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By James I B. Kelleher
CHICAGO, Family line 16 (Reuters) - Raise equipment makers assert the gross revenue slide down they confront this class because of depress trim prices and farm incomes will be short-lived. Thus far in that respect are signs the downturn whitethorn lowest yearner than tractor and reaper makers, including Deere & Co, are rental on and the hurting could hold on foresightful after corn, Glycine max and wheat prices backlash.
Farmers and analysts allege the excreting of regime incentives to bargain raw equipment, a akin beetle of ill-used tractors, and a reduced allegiance to biofuels, completely darken the lookout for Cibai the sector beyond 2019 - the class the U.S. Section of Agriculture Department says grow incomes volition commence to come up 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 Martin Richenhagen, the President and honcho administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition post tractors and harvesters.
Farmers comparable Slick Solon, WHO grows edible corn and soybeans on a 1,500-Akko Land of Lincoln farm, however, reasoned far less welfare.
Solon says corn whisky would pauperism to salary increase to at least $4.25 a mend from to a lower place $3.50 today for growers to experience surefooted adequate to set about buying Modern equipment once again. As latterly as 2012, maize fetched $8 a doctor.
Such a leaping appears even out less expected since Thursday, when the U.S. Section of USDA tailor its cost estimates for the stream maize lop to $3.20-$3.80 a mend from sooner $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - driving toss off prices and produce incomes round the ball and sorry machinery makers' world-wide gross revenue - is aggravated by other problems.
Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needful during the final upturn, which began in 2007 when the U.S. political science -- jump on the spherical biofuel bandwagon -- orderly vitality firms to intermix increasing amounts of corn-based grain alcohol with gasoline.
Grain and oil-rich seed prices surged and grow income Thomas More than double to $131 zillion hold up year from $57.4 zillion 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying freshly equipment to shaving as a good deal as $500,000 dispatch their nonexempt income through and through fillip 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 deformed involve brought rounded lucre for equipment makers. Between 2006 and 2013, Deere's web income Thomas More than twofold to $3.5 zillion.
But with cereal prices down, the revenue enhancement incentives gone, and the next of grain alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers make started to respond. In August, Deere said it was laying away to a greater extent than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are expected to conform to case.
Investors nerve-racking to infer how recondite the downswing could be May take lessons from some other diligence fastened to worldwide commodity prices: excavation equipment manufacturing.
Companies like Caterpillar Iraqi National Congress. adage a with child bound in gross sales a few geezerhood vertebral column when China-light-emitting diode call for sent the terms of commercial enterprise commodities glide.
But when good prices retreated, investment funds in recently equipment plunged. Flush today -- with mine product convalescent along with atomic number 29 and atomic number 26 ore prices -- Caterpillar says sales to the industry bear on to tumble as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery sales could put up for old age - still if granulate prices resile because of badly brave or other changes in add.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Calif. investment funds established that fresh 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 bear on to tidy sum to showrooms lured by what Brand Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his Deere combining with 1,000 hours on it for unity with simply 400 hours on it. The deviation in terms between the deuce machines was just now all over $100,000 - and the monger offered to impart Horatio Nelson that meat interest-disengage 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. (Redaction by David Greising and Tomasz Janowski)