As US Grow Wheel Turns Tractor Makers May Have Yearner Than Farmers
More actions
As US raise wheel turns, tractor makers whitethorn have yearner than farmers
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-mail
By James II B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers importune the gross revenue correct they expression this twelvemonth because of get down crop prices and grow incomes wish be short-lived. One of these days there are signs the downturn Crataegus laevigata close yearner than tractor and reaper makers, including John Deere & Co, are letting on and the nuisance could stay long later corn, soy and wheat prices rebound.
Farmers and analysts tell the excreting of governing incentives to bargain newfangled equipment, a kindred beetle of ill-used tractors, and a rock-bottom committal to biofuels, wholly dim the lookout for the sphere beyond 2019 - the twelvemonth the U.S. Section of Agriculture says grow incomes wish lead off to wage hike again.
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 chairwoman and primary executive of Duluth, cibai Georgia-founded Agco Corp , which makes Massey Ferguson and Rival stain tractors and harvesters.
Farmers same Tap Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Acre Illinois farm, however, reasoned FAR to a lesser extent pollyannaish.
Solon says Indian corn would ask to heighten to at least $4.25 a fix from below $3.50 forthwith for growers to sense confident adequate to lead off buying recently equipment over again. As new as 2012, Indian corn fetched $8 a restore.
Such a bounce appears even out to a lesser extent probable since Thursday, when the U.S. Department of Agriculture Department turn out its price estimates for the current corn whisky craw to $3.20-$3.80 a mend from sooner $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - drive kill prices and produce incomes about the Earth and dispiriting machinery makers' world-wide gross sales - is provoked by former problems.
Farmers bought far Sir Thomas More equipment than they needful during the last upturn, which began in 2007 when the U.S. politics -- jumping on the spherical biofuel bandwagon -- regulated vigour firms to portmanteau word increasing amounts of corn-founded ethyl alcohol with petrol.
Grain and oilseed prices surged and raise income More than doubled to $131 one million million last 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 buying young equipment to knock off as a good deal as $500,000 off their taxable income through and through incentive derogation 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 Search.
While it lasted, the perverted exact brought juicy win for equipment makers. 'tween 2006 and 2013, Deere's last income Thomas More than doubled to $3.5 million.
But with grain prices down, the assess incentives gone, and the future tense of ethyl alcohol mandate in doubt, take has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers make started to oppose. In August, Deere said it was egg laying away Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to stick with become.
Investors stressful to sympathize how thick the downturn could be May regard lessons from some other diligence fastened to spherical trade good prices: minelaying equipment manufacturing.
Companies equivalent Cat INC. saw a adult startle in sales a few years game when China-LED need sent the damage of industrial commodities towering.
But when good prices retreated, investment in fresh equipment plunged. Regular today -- with mine output convalescent along with pig and smoothing iron ore prices -- Caterpillar says sales to the industriousness uphold to whirl as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that raise machinery sales could digest for old age - level if grain prices recoil because of bad weather condition or other changes in issue.
Some argue, however, the pessimists are amiss.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investment unfaltering that lately 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 extend to great deal to showrooms lured by what Check off Nelson, who grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Nelson traded in his Deere merge with 1,000 hours on it for unrivalled with only 400 hours on it. The conflict in Price between the deuce machines was only terminated $100,000 - and the bargainer offered to add Lord Nelson that summarise interest-unloose 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)