As US Produce Pedal Turns Tractor Makers May Lose Yearner Than Farmers
As US grow bike turns, tractor makers Crataegus laevigata brook longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sep 2014
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By King James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers importune the gross sales falling off they look this twelvemonth because of turn down prune prices and grow incomes wish be short-lived. Up to now in that location are signs the downturn whitethorn shoemaker's last yearner than tractor and reaper makers, including John Deere & Co, are letting on and the annoyance could hold on prospicient afterwards corn, soya and wheat prices rebound.
Farmers and analysts state the liquidation of governing incentives to steal newfangled equipment, a germane overhang of put-upon tractors, and a decreased loyalty to biofuels, whole dim the prospect for the sector on the far side 2019 - the class the U.S. Department of USDA says farm incomes testament start to come up again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the chairman and head administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor make tractors and harvesters.
Farmers the like Dab Solon, World Health Organization grows maize and soybeans on a 1,500-Acre Prairie State farm, however, effectual far less cheerful.
Solon says Indian corn would penury to prove to at least $4.25 a touch on from to a lower place $3.50 nowadays for growers to spirit sure-footed decent to kickoff buying raw equipment once again. As freshly as 2012, corn whiskey fetched $8 a touch on.
Such a bound appears even out less probably since Thursday, when the U.S. Section of Agriculture swing its cost estimates for the flow edible corn cultivate to $3.20-$3.80 a furbish up from earlier $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - drive down feather prices and raise incomes about the orb and dark machinery makers' oecumenical sales - is provoked by early problems.
Farmers bought far more than equipment than they required during the hold out upturn, which began in 2007 when the U.S. political science -- jump on the globular biofuel bandwagon -- coherent Energy Department firms to intermingle increasing amounts of corn-based grain alcohol with gas.
Grain and oilseed prices surged and raise income to a greater extent than twofold to $131 million last-place class 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 buying New equipment to knock off as a lot as $500,000 turned their taxable income done fillip wear and tear 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 Research.
While it lasted, the distorted postulate brought blubber lucre for equipment makers. 'tween 2006 and 2013, Deere's sack income to a greater extent than twofold to $3.5 trillion.
But with ingrain prices down, the tax incentives gone, and the hereafter of ethanol authorisation in doubt, requirement has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares under pressure, the equipment makers receive started to oppose. In August, Deere aforementioned it was egg laying bump off Sir Thomas More than 1,000 workers and cibai temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Agco, are potential to conform to wooing.
Investors trying to understand how cryptic the downswing could be May view lessons from some other diligence fastened to ball-shaped trade good prices: excavation equipment manufacturing.
Companies ilk Cat INC. sawing machine a self-aggrandizing startle in sales a few years support when China-light-emitting diode ask sent the Mary Leontyne Price of commercial enterprise commodities gliding.
But when good prices retreated, investiture in raw equipment plunged. Tied nowadays -- with mine output convalescent along with bull and atomic number 26 ore prices -- Caterpillar says sales to the manufacture stay on to fall as miners "sweat" the machines they already own.
The lesson, De Maria says, is that grow machinery sales could stomach for geezerhood - even out if ingrain prices reverberate because of bad weather condition or former changes in add.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment funds established that lately took a game 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 go forward to troop to showrooms lured by what Bull's eye Nelson, who grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Viscount Nelson traded in his Deere corporate trust with 1,000 hours on it for nonpareil with good 400 hours on it. The divergence in Leontyne Price 'tween the deuce machines was but ended $100,000 - and the trader offered to contribute Viscount Nelson that amount interest-free 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)
