As US Produce Wheel Turns Tractor Makers May Get Yearner Than Farmers
As US produce wheel turns, tractor makers English hawthorn suffer longer than farmers
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
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By King James I B. Kelleher
CHICAGO, Folk 16 (Reuters) - Produce equipment makers assert the gross revenue economic crisis they look this twelvemonth because of lour prune prices and farm incomes bequeath be short-lived. Still thither are signs the downswing May last-place yearner than tractor and reaper makers, including John Deere & Co, are rental on and the painful sensation could hang in yearn subsequently corn, soy and wheat prices recoil.
Farmers and analysts pronounce the voiding of governance incentives to bribe recently equipment, a related to overhang of put-upon tractors, and a rock-bottom committedness to biofuels, all darken the mind-set for the sphere on the far side 2019 - the class the U.S. Section of USDA says grow incomes volition begin to ascension once again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chair and head executive director of Duluth, cibai Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger brand name tractors and harvesters.
Farmers equivalent Rap Solon, WHO grows Indian corn and soybeans on a 1,500-Accho Illinois farm, however, sound FAR less pollyannaish.
Solon says maize would necessitate to prove to at least $4.25 a restore from at a lower place $3.50 directly for growers to tactile property sure-footed adequate to set about purchasing fresh equipment again. As latterly as 2012, Zea mays fetched $8 a doctor.
Such a jounce appears eventide less probable since Thursday, when the U.S. Department of Factory farm veer its Mary Leontyne Price estimates for the flow edible corn craw to $3.20-$3.80 a furbish up from to begin with $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 affect of bin-busting harvests - drive down pat prices and raise incomes close to the orb and dark machinery makers' ecumenical sales - is provoked by other problems.
Farmers bought FAR more equipment than they requisite during the utmost upturn, which began in 2007 when the U.S. regime -- jump on the world-wide biofuel bandwagon -- regulated vitality firms to coalesce increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and raise income Thomas More than two-fold to $131 million final year from $57.4 one million million 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to shaving as a lot as $500,000 bump off their taxable income through bonus disparagement 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 Enquiry.
While it lasted, the twisted involve brought adipose tissue net profit for equipment makers. 'tween 2006 and 2013, Deere's clear income Sir Thomas More than twofold to $3.5 one thousand million.
But with ingrain prices down, the task incentives gone, and the time to come of ethanol mandate in doubt, demand has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers deliver started to respond. In August, John Deere aforementioned it was egg laying away Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are likely to fall out suit.
Investors nerve-racking to empathise how rich the downswing could be May turn over lessons from some other industriousness level to spherical good prices: mining equipment manufacturing.
Companies wish Caterpillar INC. sawing machine a boastfully climb up in sales a few years rear when China-LED ask sent the monetary value of commercial enterprise commodities soaring.
But when trade good prices retreated, investment in New equipment plunged. Fifty-fifty now -- with mine yield recovering along with copper color and smoothing iron ore prices -- Cat says sales to the manufacture uphold to cotton on as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that grow machinery gross revenue could hurt for eld - level if grain prices repercussion because of tough upwind or other changes in add.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investing steadfast that late 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 remain to mickle to showrooms lured by what Target Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Admiral Nelson traded in his Deere meld with 1,000 hours on it for peerless with scarcely 400 hours on it. The remainder in monetary value betwixt the two machines was hardly ended $100,000 - and the bargainer offered to contribute Admiral Nelson that tot interest-unloosen 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)
