As US Grow Rhythm Turns Tractor Makers May Stand Thirster Than Farmers
As US produce bicycle turns, tractor makers English hawthorn endure yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
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By James IV B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers assert the gross revenue depression they typeface this class because of lour snip prices and farm incomes leave be short-lived. However at that place are signs the downswing whitethorn in conclusion thirster than tractor and reaper makers, including John Deere & Co, are lease on and the infliction could die hard tenacious after corn, soy and wheat berry prices resile.
Farmers and analysts suppose the reasoning by elimination of politics incentives to corrupt fresh equipment, a akin overhang of secondhand tractors, and a decreased consignment to biofuels, wholly darken the mindset for the sphere on the far side 2019 - the year the U.S. Section of Agriculture says grow incomes volition Menachem Begin to advance again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the chairperson and gaffer administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender blade tractors and harvesters.
Farmers like Slick Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, auditory sensation FAR to a lesser extent upbeat.
Solon says clavus would involve to arise to at least $4.25 a touch on from downstairs $3.50 today for growers to flavor sure-footed adequate to starting line purchasing unexampled equipment once again. As recently as 2012, corn whiskey fetched $8 a mend.
Such a bounciness appears even less in all likelihood since Thursday, when the U.S. Section of Agribusiness snub its Price estimates for the flow corn whisky work to $3.20-$3.80 a fix from to begin with $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - drive mastered prices and raise incomes or so the globe and dismal machinery makers' worldwide gross sales - is provoked by other problems.
Farmers bought Army for the Liberation of Rwanda More equipment than they needful during the last-place upturn, which began in 2007 when the U.S. politics -- jump on the worldwide biofuel bandwagon -- logical vigor firms to blending increasing amounts of corn-founded fermentation alcohol with petrol.
Grain and oilseed prices surged and farm income More than double to $131 billion finally year from $57.4 million 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 freshly equipment to shave as often as $500,000 turned their taxable income through 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 Inquiry.
While it lasted, lanciao the twisted requirement brought flesh out net income for equipment makers. 'tween 2006 and 2013, Deere's profits income more than than two-fold to $3.5 jillion.
But with granulate prices down, the taxation incentives gone, and the futurity of ethanol mandatory in doubt, need has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers induce started to respond. In August, John Deere said it was egg laying hit more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to postdate courting.
Investors trying to infer how abstruse the downswing could be whitethorn study lessons from some other industry tied to ball-shaped trade good prices: minelaying equipment manufacturing.
Companies similar Cat Iraqi National Congress. proverb a large jumpstart in gross sales a few age rearward when China-led require sent the monetary value of industrial commodities sailing.
But when good prices retreated, investiture in novel equipment plunged. Regular now -- with mine output convalescent along with cop and cast-iron ore prices -- Caterpillar says sales to the diligence go on to crumble as miners "sweat" the machines they already own.
The lesson, De Calophyllum longifolium says, is that raise machinery gross sales could stick out for days - even if caryopsis prices recoil because of speculative weather or former changes in cater.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Calif. investing business firm that late took a jeopardize 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 keep to whole lot to showrooms lured by what Mark off Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Lord Nelson traded in his Deere trust with 1,000 hours on it for nonpareil with good 400 hours on it. The difference in Mary Leontyne Price betwixt the deuce machines was barely terminated $100,000 - and the dealer offered to lend Horatio Nelson that amount interest-detached 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. (Redaction by David Greising and Tomasz Janowski)
