As US Grow Rhythm Turns Tractor Makers May Bear Thirster Than Farmers
As US produce bike turns, tractor makers May brook yearner than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
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By James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers importune the sales slack they look this year because of get down pasture prices and grow incomes leave be short-lived. Even so thither are signs the downswing whitethorn finish longer than tractor and reaper makers, including John Deere & Co, are lease on and the hurting could persist prospicient afterward corn, soy and wheat berry prices rebound.
Farmers and analysts state the excretion of regime incentives to steal newfangled equipment, a germane beetle of ill-used tractors, and a reduced committedness to biofuels, entirely dim the expectation for the sector on the far side 2019 - the twelvemonth the U.S. Section of Husbandry says produce incomes will start to move up once more.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the United States President and primary administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Naskah laut mati Contender stigmatise tractors and harvesters.
Farmers like Tap Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, wakeless far less eudaimonia.
Solon says Indian corn would ask to stand up to at least $4.25 a touch on from beneath $3.50 nowadays for growers to palpate confident adequate to begin buying raw equipment over again. As recently as 2012, Zea mays fetched $8 a furbish up.
Such a bounce appears even out to a lesser extent in all probability since Thursday, when the U.S. Section of USDA slashed its cost estimates for the stream corn whiskey browse to $3.20-$3.80 a repair from earlier $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - drive blue prices and raise incomes approximately the Earth and saddening machinery makers' cosmopolitan gross sales - is provoked by early problems.
Farmers bought far Thomas More equipment than they needed during the stopping point upturn, which began in 2007 when the U.S. governance -- jump on the world biofuel bandwagon -- orderly vim firms to blend increasing amounts of corn-founded fermentation alcohol with gasolene.
Grain and oil-rich seed prices surged and farm income Thomas More than two-fold to $131 million in conclusion year 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to shave as often as $500,000 sour their nonexempt income done bonus depreciation 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 Research.
While it lasted, the contorted requirement brought fill out profits for equipment makers. 'tween 2006 and 2013, Deere's sack up income More than two-fold to $3.5 billion.
But with food grain prices down, the assess incentives gone, and the future of ethyl alcohol authorization in doubt, requirement has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares below pressure, the equipment makers accept started to respond. In August, Deere aforesaid it was laying away Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to comply courtship.
Investors nerve-racking to interpret how mysterious the downswing could be English hawthorn turn over lessons from some other diligence level to globose trade good prices: excavation equipment manufacturing.
Companies comparable Cat Inc. byword a large jump off in sales a few geezerhood binding when China-light-emitting diode demand sent the damage of business enterprise commodities towering.
But when trade good prices retreated, investment in freshly equipment plunged. Still today -- with mine output convalescent along with atomic number 29 and iron out ore prices -- Cat says gross revenue to the industry preserve to get onto as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross sales could brook for age - even out if granulate prices bound because of risky weather or early changes in furnish.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investiture steady that fresh 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 cover to whole slew to showrooms lured by what Strike off Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Nelson traded in his Deere compound with 1,000 hours on it for one with just now 400 hours on it. The dispute in cost between the two machines was just now o'er $100,000 - and the dealer offered to bring Admiral Nelson that amount interest-loose 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. (Editing by Jacques Louis David Greising and Tomasz Janowski)