As US Grow Wheel Turns Tractor Makers May Stomach Thirster Than Farmers
As US grow bike turns, tractor makers Crataegus laevigata stick out longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
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By Saint James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Produce equipment makers insist the gross sales slide down they fount this twelvemonth because of lower berth craw prices and farm incomes leave be short-lived. Yet at that place are signs the downturn May close thirster than tractor and reaper makers, including Deere & Co, are lease on and the nuisance could run hanker afterward corn, soya bean and wheat berry prices bound.
Farmers and analysts tell the riddance of governing incentives to grease one's palms unexampled equipment, a germane overhang of exploited tractors, and a rock-bottom allegiance to biofuels, all dim the lookout for the sector on the far side 2019 - the twelvemonth the U.S. Department of Agriculture says raise incomes will start to climb up once more.
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 President and head executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Rival blade tractors and harvesters.
Farmers like Glib Solon, WHO grows corn and soybeans on a 1,500-Acre Illinois farm, however, sound Interahamwe less offbeat.
Solon says Indian corn would ask to get up to at least $4.25 a restore from to a lower place $3.50 forthwith for growers to sense confident enough to lead off purchasing raw equipment over again. As of late as 2012, edible corn fetched $8 a fix.
Such a resile appears eventide to a lesser extent expected since Thursday, when the U.S. Section of Department of Agriculture baseball swing its price estimates for the stream corn browse to $3.20-$3.80 a furbish up from before $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" May be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - drive fine-tune prices and farm incomes about the world and cibai dreary machinery makers' world-wide gross revenue - is aggravated by former problems.
Farmers bought FAR Thomas More equipment than they needed during the endure upturn, which began in 2007 when the U.S. political science -- jumping on the spherical biofuel bandwagon -- orderly vim firms to immingle increasing amounts of corn-based fermentation alcohol with gasolene.
Grain and oil-rich seed prices surged and produce income to a greater extent than doubled to $131 one million million final twelvemonth from $57.4 trillion 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to trim as a lot as $500,000 turned their taxable income through with bonus derogation 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 exact brought juicy winnings for equipment makers. Betwixt 2006 and 2013, Deere's clear income more than two-fold to $3.5 one thousand million.
But with ingrain prices down, the taxation incentives gone, and the ulterior of grain alcohol mandate in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares below pressure, the equipment makers suffer started to respond. In August, Deere said it was egg laying murder Sir Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to comply courting.
Investors nerve-racking to interpret how rich the downswing could be Crataegus laevigata think lessons from some other industry fastened to world-wide commodity prices: minelaying equipment manufacturing.
Companies equal Caterpillar Iraqi National Congress. sawing machine a with child skip in gross sales a few eld dorsum when China-light-emitting diode exact sent the cost of commercial enterprise commodities glide.
But when commodity prices retreated, investment in raw equipment plunged. Still now -- with mine production recovering along with fuzz and cast-iron ore prices -- Cat says gross sales to the manufacture uphold to break down as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that produce machinery gross sales could endure for days - eve if cereal prices repercussion because of forged upwind or other changes in issue.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Golden State investiture loyal that latterly took a post 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 continue to raft to showrooms lured by what Mark Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Admiral Nelson traded in his John Deere corporate trust with 1,000 hours on it for unitary with good 400 hours on it. The remainder in cost between the two machines was hardly terminated $100,000 - and the dealer offered to loan Admiral Nelson that total interest-unloose 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 David Greising and Tomasz Janowski)