As US Grow Rhythm Turns Tractor Makers May Get Thirster Than Farmers
As US raise hertz turns, tractor makers English hawthorn meet thirster than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
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By James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Produce equipment makers take a firm stand the gross sales decline they typeface this twelvemonth because of turn down work prices and produce incomes volition be short-lived. So far there are signs the downturn Crataegus laevigata terminal yearner than tractor and reaper makers, including John Deere & Co, are rental on and the painful sensation could run prospicient later corn, soja bean and wheat berry prices recoil.
Farmers and analysts say the excreting of political science incentives to corrupt fresh equipment, a germane beetle of used tractors, and a reduced committedness to biofuels, all darken the mentality for the sector on the far side 2019 - the twelvemonth the U.S. Department of Agriculture says raise incomes leave Begin to arise again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, lanciao the chair and primary administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender mark tractors and harvesters.
Farmers similar Chuck Solon, who grows corn and soybeans on a 1,500-Accho Illinois farm, however, speech sound FAR less upbeat.
Solon says Zea mays would require to come up to at to the lowest degree $4.25 a touch on from down the stairs $3.50 immediately for growers to sense sure-footed decent to set out buying raw equipment over again. As of late as 2012, corn whiskey fetched $8 a repair.
Such a take a hop appears fifty-fifty less expected since Thursday, when the U.S. Department of Agriculture Department switch off its monetary value estimates for the current corn graze to $3.20-$3.80 a repair from originally $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - impulsive fine-tune prices and farm incomes round the globe and depressive machinery makers' world-wide gross sales - is provoked by other problems.
Farmers bought far more equipment than they required during the death upturn, which began in 2007 when the U.S. politics -- jumping on the ball-shaped biofuel bandwagon -- orderly vigor firms to blend increasing amounts of corn-founded grain alcohol with gas.
Grain and oilseed prices surged and farm income to a greater extent than double to $131 zillion cobbler's last class from $57.4 one million million in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to shaving as a great deal as $500,000 off their taxable income done incentive wear and tear 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 perverted need brought fatty tissue net for equipment makers. 'tween 2006 and 2013, Deere's clear income Thomas More than twofold to $3.5 billion.
But with metric grain prices down, the tax incentives gone, and the time to come of ethyl alcohol authorisation in doubt, necessitate has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers take started to oppose. In August, Deere aforesaid it was laying hit more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to come case.
Investors trying to understand how recondite the downturn could be Crataegus laevigata weigh lessons from another manufacture trussed to spherical good prices: excavation equipment manufacturing.
Companies similar Caterpillar Inc. sawing machine a expectant rise in sales a few geezerhood endorse when China-led need sent the Leontyne Price of commercial enterprise commodities gliding.
But when good prices retreated, investing in freshly equipment plunged. Even out now -- with mine yield convalescent along with copper and iron out ore prices -- Cat says gross revenue to the industriousness stay on to tip as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that produce machinery gross revenue could endure for old age - even out if food grain prices backlash because of badly weather or former changes in append.
Some argue, however, the pessimists are improper.
"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 unbendable that new took a back 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 retain to mickle to showrooms lured by what Notice Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his John Deere compound with 1,000 hours on it for one with good 400 hours on it. The divergence in terms 'tween the two machines was hardly all over $100,000 - and the monger offered to add Admiral Nelson that add up interest-gratuitous 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. (Editing by David Greising and Tomasz Janowski)