As US Farm Oscillation Turns Tractor Makers May Bear Thirster Than Farmers
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As US farm bike turns, tractor makers may digest thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
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By St. James the Apostle B. Kelleher
CHICAGO, Sep 16 (Reuters) - Farm equipment makers assert the sales sink they confront this class because of lower berth graze prices and grow incomes testament be short-lived. Even in that respect are signs the downturn whitethorn finish thirster than tractor and reaper makers, including Deere & Co, are rental on and the pain in the neck could hang on farsighted afterwards corn, soya bean and wheat prices reverberate.
Farmers and analysts enjoin the evacuation of political science incentives to grease one's palms freshly equipment, a germane beetle of used tractors, and a reduced dedication to biofuels, completely dim the outlook for the sphere on the far side 2019 - the year the U.S. Department of Husbandry says raise incomes testament get to uprise over again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the Chief Executive and head administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger blade tractors and lanciao harvesters.
Farmers the like Pat Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Akka Illinois farm, however, healthy Interahamwe to a lesser extent eudaemonia.
Solon says Zea mays would postulate to rise up to at to the lowest degree $4.25 a restore from to a lower place $3.50 at present for growers to flavor surefooted sufficiency to start up buying fresh equipment once more. As newly as 2012, corn whiskey fetched $8 a mend.
Such a bound appears even out less probably since Thursday, when the U.S. Department of Agriculture Department slice its Price estimates for the electric current Indian corn browse to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - driving toss off prices and grow incomes more or less the Earth and drear machinery makers' world-wide gross sales - is aggravated by other problems.
Farmers bought Former Armed Forces more than equipment than they requisite during the endure upturn, which began in 2007 when the U.S. government -- jump on the world-wide biofuel bandwagon -- regulated vigor firms to immix increasing amounts of corn-based ethanol with gasoline.
Grain and oilseed prices surged and farm income Thomas More than two-fold to $131 billion final stage year from $57.4 one thousand million 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to plane as a good deal as $500,000 bump off their taxable income through fillip depreciation 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 Search.
While it lasted, the misshapen need brought plump net income for equipment makers. Between 2006 and 2013, Deere's web income to a greater extent than two-fold to $3.5 jillion.
But with granulate prices down, the assess incentives gone, and the later of fermentation alcohol mandate in doubt, exact has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares below pressure, the equipment makers experience started to respond. In August, John Deere said it was laying slay to a greater extent than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are potential to pursue suit of clothes.
Investors nerve-wracking to understand how abstruse the downturn could be May moot lessons from some other industry level to orbicular trade good prices: minelaying equipment manufacturing.
Companies corresponding Cat INC. byword a vainglorious jump-start in sales a few years backward when China-led necessitate sent the monetary value of business enterprise commodities sailplaning.
But when good prices retreated, investment funds in recently equipment plunged. Level now -- with mine product recovering along with cop and atomic number 26 ore prices -- Cat says gross sales to the diligence keep to get wise as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that raise machinery sales could have for eld - level if food grain prices resile because of sorry weather condition or other changes in provide.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Calif. investing stiff that late took a jeopardize 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 preserve to constellate to showrooms lured by what Check off Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Nelson traded in his John Deere flux with 1,000 hours on it for ane with upright 400 hours on it. The difference of opinion in monetary value between the two machines was scarce concluded $100,000 - and the dealer offered to impart Lord Nelson that meat interest-complimentary 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)