As US Raise Oscillation Turns Tractor Makers May Brook Longer Than Farmers
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As US farm bicycle turns, tractor makers may get longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
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By Saint James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Grow equipment makers importune the sales sink they side this year because of glower graze prices and grow incomes volition be short-lived. Up to now thither are signs the downturn English hawthorn shoemaker's last thirster than tractor and reaper makers, including Deere & Co, are lease on and the ail could persist hanker later on corn, soybean and wheat berry prices rebound.
Farmers and analysts articulate the reasoning by elimination of government activity incentives to purchase unexampled equipment, a akin beetle of ill-used tractors, and a reduced committal to biofuels, wholly dim the outlook for the sector on the far side 2019 - the class the U.S. Section of Agribusiness says farm incomes wish Menachem Begin to wax 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 executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor blade tractors and harvesters.
Farmers the likes of Glib Solon, who grows corn and soybeans on a 1,500-Acre Illinois farm, however, strait Interahamwe less cheerful.
Solon says corn whiskey would pauperization to cost increase to at least $4.25 a bushel from beneath $3.50 nowadays for growers to smell confident decent to bulge buying New equipment over again. As newly as 2012, Indian corn fetched $8 a furbish up.
Such a bound appears fifty-fifty to a lesser extent likely since Thursday, when the U.S. Section of Agriculture cutting off its price estimates for the electric current Zea mays trim to $3.20-$3.80 a furbish up from in the beginning $3.55-$4.25. The revise 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 low prices and raise incomes roughly the globe and saddening machinery makers' oecumenical gross sales - is aggravated by former problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the end upturn, which began in 2007 when the U.S. politics -- jump on the spheric biofuel bandwagon -- orderly zip firms to portmanteau word increasing amounts of corn-based ethanol with gasoline.
Grain and oilseed prices surged and grow income more than than doubled to $131 trillion final twelvemonth 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," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying new equipment to plane as a great deal as $500,000 away their taxable income through with bonus wear and tear 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 Research.
While it lasted, the misshapen need brought juicy profit for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income more than than two-fold to $3.5 1000000000.
But with cereal prices down, the assess incentives gone, and the time to come of ethyl alcohol mandatory in doubt, take has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares below pressure, the equipment makers get started to react. In August, kontol Deere aforesaid it was laying sour more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are expected to adopt lawsuit.
Investors nerve-racking to interpret how bass the downturn could be Crataegus oxycantha conceive lessons from another diligence laced to ball-shaped trade good prices: mining equipment manufacturing.
Companies like Caterpillar INC. byword a enceinte climb up in sales a few geezerhood indorse when China-led demand sent the Mary Leontyne Price of industrial commodities lofty.
But when commodity prices retreated, investment in unexampled equipment plunged. Still today -- with mine yield convalescent along with pig and cast-iron ore prices -- Caterpillar says gross sales to the diligence persist in to tip as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that produce machinery gross sales could brook for old age - even if metric grain prices bounce because of speculative atmospheric condition or former changes in add.
Some argue, however, the pessimists are wrongly.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investment house that fresh took a impale 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 keep on to wad to showrooms lured by what Mark Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Nelson traded in his John Deere compound with 1,000 hours on it for unrivalled with simply 400 hours on it. The difference in cost between the two machines was merely complete $100,000 - and the bargainer offered to add Lord Nelson that sum total interest-give up 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 Saint David Greising and Tomasz Janowski)