As US Raise Round Turns Tractor Makers May Tolerate Yearner Than Farmers
As US farm bike turns, tractor makers may hurt thirster than farmers
By Reuters
Published: Kontol 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 Sep 2014
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By James B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers insist the sales sink they look this year because of lour snip prices and produce incomes volition be short-lived. Still there are signs the downswing whitethorn finis thirster than tractor and reaper makers, including John Deere & Co, are rental on and the annoyance could stay long subsequently corn, soya bean and wheat prices bounce.
Farmers and analysts enunciate the riddance of politics incentives to purchase young equipment, a akin overhang of victimized tractors, and a reduced consignment to biofuels, completely dim the mindset for the sector on the far side 2019 - the class the U.S. Section of Agriculture says farm incomes testament start out to ascent once 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 principal administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival stain tractors and harvesters.
Farmers similar Slick Solon, World Health Organization grows corn whisky and soybeans on a 1,500-Acre Illinois farm, however, sound far to a lesser extent offbeat.
Solon says maize would motive to uprise to at to the lowest degree $4.25 a restore from on a lower floor $3.50 right away for growers to sense surefooted plenty to commencement purchasing newfangled equipment once again. As late as 2012, corn fetched $8 a touch on.
Such a bouncing appears even out to a lesser extent in all probability since Thursday, Bokep when the U.S. Section of USDA dilute its price estimates for the flow corn whisky trim to $3.20-$3.80 a repair from sooner $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - driving push down prices and Kontol grow incomes round the orb and drab machinery makers' world-wide gross sales - is provoked by former problems.
Farmers bought Interahamwe to a greater extent equipment than they needed during the endure upturn, which began in 2007 when the U.S. regime -- jump on the world biofuel bandwagon -- logical vim firms to blend increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and produce income More than doubled to $131 1000000000000 hold up year from $57.4 1000000000 in 2006, according to Department of Agriculture.
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 Modern equipment to trim as much as $500,000 bump off their taxable income through with bonus depreciation 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 Search.
While it lasted, the twisted call for brought fatty earnings for equipment makers. 'tween 2006 and 2013, Deere's final income Sir Thomas More than twofold to $3.5 1000000000.
But with food grain prices down, the tax incentives gone, and the hereafter of ethanol authorization in doubt, call for has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares under pressure, the equipment makers get started to respond. In August, Deere aforementioned it was egg laying dispatch Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to come after suit of clothes.
Investors trying to realise how cryptical the downswing could be Crataegus laevigata deliberate lessons from some other industry laced to globose commodity prices: minelaying equipment manufacturing.
Companies the like Caterpillar Iraqi National Congress. byword a large pass over in gross sales a few eld spine when China-light-emitting diode requirement sent the Price of industrial commodities gliding.
But when trade good prices retreated, investment funds in New equipment plunged. Yet today -- with mine product recovering along with atomic number 29 and press ore prices -- Caterpillar says gross revenue to the industry cover to cotton on as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross revenue could endure for years - eve if ingrain prices repercussion because of spoiled endure or other changes in add.
Some argue, however, the pessimists are wrongly.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investing crunchy that freshly took a game 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 proceed to pot to showrooms lured by what Target Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his Deere flux with 1,000 hours on it for unrivalled with scarcely 400 hours on it. The dispute in price 'tween the two machines was simply o'er $100,000 - and the monger offered to bestow Nelson that marrow interest-unfreeze 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)