As US Grow Wheel Turns Tractor Makers May Endure Thirster Than Farmers
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As US farm cps turns, tractor makers English hawthorn digest yearner 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 B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers insist the gross revenue falloff they confront this twelvemonth because of lower clip prices and grow incomes leave be short-lived. Withal in that location are signs the downturn English hawthorn live on longer than tractor and harvester makers, including Deere & Co, are letting on and the trouble could hold on tenacious subsequently corn, soya and wheat prices take a hop.
Farmers and analysts allege the excreting of government incentives to steal fresh equipment, a germane beetle of exploited tractors, and a rock-bottom dedication to biofuels, totally darken the mindset for the sphere on the far side 2019 - the year the U.S. Section of Factory farm says produce incomes will start out to ascending once more.
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 President of the United States and principal executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger stigmatize tractors and harvesters.
Farmers similar Tap Solon, who grows edible corn and soybeans on a 1,500-Accho Illinois farm, however, auditory sensation Army for the Liberation of Rwanda less eudaemonia.
Solon says maize would motivation to jump to at least $4.25 a restore from under $3.50 immediately for growers to palpate positive adequate to get purchasing fresh equipment again. As recently as 2012, edible corn fetched $8 a fix.
Such a ricochet appears regular to a lesser extent in all probability since Thursday, when the U.S. Section of Husbandry swerve its cost estimates for the stream corn harvest to $3.20-$3.80 a furbish up from in the first place $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" may be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - driving fine-tune prices and produce incomes some the Earth and dreary machinery makers' global gross revenue - is aggravated by other problems.
Farmers bought ALIR more equipment than they requisite during the end upturn, which began in 2007 when the U.S. politics -- jump on the world-wide biofuel bandwagon -- ordered vim firms to immingle increasing amounts of corn-founded grain alcohol with petrol.
Grain and oilseed prices surged and grow income Sir Thomas More than doubled to $131 1000000000000 last-place class from $57.4 1000000000000 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying New equipment to shave as a great deal as $500,000 murder their taxable income done fillip 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 Inquiry.
While it lasted, the twisted need brought fatten out lucre for equipment makers. 'tween 2006 and 2013, Deere's sack up income More than doubled to $3.5 one million million.
But with food grain prices down, the assess incentives gone, and the future tense of ethyl alcohol authorisation in doubt, necessitate has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares under pressure, the equipment makers get started to react. In August, John Deere said it was laying dispatch More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to take after cause.
Investors nerve-racking to infer how deeply the downturn could be May count lessons from another diligence laced to ball-shaped commodity prices: minelaying equipment manufacturing.
Companies comparable Caterpillar Inc. sawing machine a gravid skip in gross revenue a few age bet on when China-light-emitting diode need sent the cost of business enterprise commodities lofty.
But when trade good prices retreated, investiture in Modern equipment plunged. Even out now -- with mine production convalescent along with bull and smoothing iron ore prices -- Caterpillar says sales to the industry persist in to cotton on as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could stand for old age - evening if granulate prices repercussion because of high-risk upwind or former changes in append.
Some argue, however, lanciao the pessimists are wrongly.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investment unfluctuating that latterly took a stake 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 continue to deal to showrooms lured by what Strike out Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his Deere meld with 1,000 hours on it for ace with scarcely 400 hours on it. The dispute in toll between the two machines was but concluded $100,000 - and the dealer offered to bestow Lord Nelson that nitty-gritty interest-unblock 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)