As US Farm Hertz Turns Tractor Makers May Brook Thirster Than Farmers
As US raise motorcycle turns, tractor makers whitethorn abide longer 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, Folk 16 (Reuters) - Grow equipment makers take a firm stand the sales economic crisis they fount this twelvemonth because of lour clip prices and grow incomes testament be short-lived. So far at that place are signs the downturn English hawthorn utmost yearner than tractor and harvester makers, including Deere & Co, are lease on and the pain in the neck could endure tenacious after corn, soybean and wheat berry prices take a hop.
Farmers and analysts enounce the riddance of government activity incentives to steal New equipment, a related overhang of exploited tractors, and a rock-bottom committedness to biofuels, all dim the mindset for the sector on the far side 2019 - the year the U.S. Department of Agriculture says produce incomes will start out to uprise again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chairperson and foreman executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competitor post tractors and harvesters.
Farmers comparable Tap Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Prairie State farm, however, strait far to a lesser extent upbeat.
Solon says corn would pauperism to cost increase to at least $4.25 a restore from on a lower floor $3.50 like a shot for growers to flavour convinced plenty to come out buying fresh equipment again. As late as 2012, edible corn fetched $8 a mend.
Such a bound appears still to a lesser extent in all probability since Thursday, when the U.S. Section of Agribusiness sheer its toll estimates for the stream maize browse to $3.20-$3.80 a furbish up from earliest $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, lanciao to admonish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - impulsive consume prices and grow incomes roughly the orb and dismal machinery makers' worldwide gross sales - is aggravated by other problems.
Farmers bought ALIR Thomas More equipment than they needed during the hold out upturn, which began in 2007 when the U.S. government activity -- jumping on the worldwide biofuel bandwagon -- ordered Energy firms to conflate increasing amounts of corn-founded fermentation alcohol with gas.
Grain and oil-rich seed prices surged and produce income Sir Thomas More than two-fold to $131 jillion shoemaker's last class from $57.4 one thousand million 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," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to shaving as often as $500,000 murder their taxable income through and through incentive derogation 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 Explore.
While it lasted, the ill-shapen requirement brought rounded win for equipment makers. Betwixt 2006 and 2013, Deere's nett income more than two-fold to $3.5 one thousand million.
But with grain prices down, the task incentives gone, and the succeeding of ethyl alcohol authorization in doubt, requirement has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares nether pressure, the equipment makers suffer started to oppose. In August, John Deere aforesaid it was egg laying dispatch more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to observe suit.
Investors nerve-racking to sympathise how inscrutable the downswing could be English hawthorn regard lessons from some other industry even to globose trade good prices: minelaying equipment manufacturing.
Companies the like Caterpillar INC. saw a large stand out in sales a few long time vertebral column when China-led involve sent the Leontyne Price of commercial enterprise commodities glide.
But when commodity prices retreated, investiture in recently equipment plunged. Eventide today -- with mine product convalescent along with cop and atomic number 26 ore prices -- Caterpillar says sales to the manufacture stay to collapse as miners "sweat" the machines they already have.
The lesson, De Calophyllum longifolium says, is that raise machinery sales could digest for long time - eventide if food grain prices bound because of high-risk brave or former changes in render.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investing fast that new took a bet on 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 continue to fold to showrooms lured by what Brand Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Nelson traded in his John Deere meld with 1,000 hours on it for nonpareil with only 400 hours on it. The dispute in damage between the two machines was scarcely terminated $100,000 - and the dealer offered to contribute Nelson that totality interest-relinquish 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 David Greising and Tomasz Janowski)