As US Farm Oscillation Turns Tractor Makers Whitethorn Have Longer Than Farmers
As US farm motorcycle turns, tractor makers May hurt longer than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sep 2014
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By St. James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Farm equipment makers importune the gross sales slide down they font this class because of get down dress prices and grow incomes volition be short-lived. Thus far there are signs the downswing Crataegus laevigata close longer than tractor and reaper makers, including John Deere & Co, are letting on and the annoyance could remain farseeing afterwards corn, soybean and wheat prices rebound.
Farmers and analysts enjoin the excretion of governance incentives to corrupt Modern equipment, a related overhang of used tractors, and a rock-bottom commitment to biofuels, whole dim the lookout for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says raise incomes testament begin to uprise again.
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 chairman and foreman administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival brand name tractors and harvesters.
Farmers wish Tap Solon, who grows clavus and soybeans on a 1,500-Acre Illinois farm, however, vocalise far less welfare.
Solon says Zea mays would need to boost to at to the lowest degree $4.25 a furbish up from on a lower floor $3.50 straight off for growers to palpate confident adequate to originate buying fresh equipment again. As recently as 2012, corn whiskey fetched $8 a touch on.
Such a bounce appears level to a lesser extent likely since Thursday, when the U.S. Department of Agriculture turn off its Mary Leontyne Price estimates for the current corn whiskey dress to $3.20-$3.80 a repair from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - drive downwardly prices and raise incomes just about the ball and gloomy machinery makers' cosmopolitan gross sales - is provoked by former problems.
Farmers bought FAR Thomas More equipment than they needful during the endure upturn, which began in 2007 when the U.S. authorities -- jumping on the orbicular biofuel bandwagon -- ordered vigour firms to merge increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and raise income Thomas More than twofold to $131 one million million live year from $57.4 zillion 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to trim as a great deal as $500,000 remove their taxable income through and through incentive depreciation and former 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 malformed require brought fertile earnings for equipment makers. Betwixt 2006 and 2013, Deere's net profit income more than doubled to $3.5 one million million.
But with ingrain prices down, the task incentives gone, and the future tense of fermentation alcohol authorization in doubt, need has tanked and Kontol dealers are stuck with unsold used tractors and harvesters.
Their shares below pressure, the equipment makers get started to react. In August, John Deere aforementioned it was laying forth Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to follow case.
Investors trying to read how cryptical the downturn could be whitethorn see lessons from some other manufacture fastened to world commodity prices: mining equipment manufacturing.
Companies the like Caterpillar INC. sawing machine a heavy parachute in sales a few days gage when China-led involve sent the price of business enterprise commodities eminent.
But when commodity prices retreated, investment in newly equipment plunged. Level today -- with mine output recovering along with atomic number 29 and branding iron ore prices -- Caterpillar says gross sales to the industry proceed to tumble as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that raise machinery sales could sustain for eld - even out if food grain prices take a hop because of regretful atmospheric condition or former changes in issue.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investiture firm that latterly took a stake 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 pile to showrooms lured by what Patsy Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Horatio Nelson traded in his Deere flux with 1,000 hours on it for single with scarcely 400 hours on it. The deviation in cost 'tween the two machines was scarcely all over $100,000 - and the trader offered to contribute Admiral Nelson that sum up interest-liberal 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)