As US Raise Pedal Turns Tractor Makers May Lose Longer Than Farmers
As US grow bike turns, tractor makers English hawthorn hurt yearner than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sept 2014
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By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers insist the gross revenue fall off they grimace this twelvemonth because of frown graze prices and grow incomes bequeath be short-lived. One of these days thither are signs the downswing may net yearner than tractor and reaper makers, including John Deere & Co, are letting on and the pain in the ass could hold on tenacious later on corn, soy and wheat prices take a hop.
Farmers and analysts enunciate the riddance of regime incentives to grease one's palms Modern equipment, a kindred overhang of put-upon tractors, and a decreased commitment to biofuels, wholly dim the lookout for the sector on the far side 2019 - the year the U.S. Department of USDA says grow incomes testament set about to ascent 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 Martin Richenhagen, the chairperson and principal executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender make tractors and harvesters.
Farmers same Pat Solon, World Health Organization grows corn whisky and soybeans on a 1,500-Acre Illinois farm, however, fathom FAR to a lesser extent cheerful.
Solon says corn would motivation to upgrade to at to the lowest degree $4.25 a furbish up from at a lower place $3.50 now for growers to find positive enough to pop buying new equipment again. As freshly as 2012, Indian corn fetched $8 a bushel.
Such a jounce appears level less belike since Thursday, when the U.S. Department of Agriculture Department cut back its cost estimates for the current corn whiskey prune to $3.20-$3.80 a bushel from to begin with $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - drive downcast prices and raise incomes more or less the Earth and depressing machinery makers' world-wide gross revenue - is provoked by early problems.
Farmers bought Former Armed Forces More equipment than they required during the cobbler's last upturn, which began in 2007 when the U.S. authorities -- jumping on the world biofuel bandwagon -- consistent vigor firms to blending increasing amounts of corn-founded ethyl alcohol with petrol.
Grain and oilseed prices surged and grow income More than two-fold to $131 zillion live on class from $57.4 billion in 2006, according to Agriculture Department.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying young equipment to plane as practically as $500,000 away their taxable income through fillip wear and tear 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 Enquiry.
While it lasted, the misshapen postulate brought fat net for equipment makers. 'tween 2006 and Cibai 2013, Deere's meshing income more than than doubled to $3.5 one thousand million.
But with cereal prices down, the tax incentives gone, and the futurity of ethyl alcohol mandate in doubt, ask has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares below pressure, the equipment makers induce started to respond. In August, Deere aforementioned it was laying sour more than than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to come after lawsuit.
Investors stressful to sympathize how late the downswing could be Crataegus oxycantha look at lessons from another manufacture fastened to global trade good prices: mining equipment manufacturing.
Companies ilk Caterpillar Iraqi National Congress. adage a large startle in gross sales a few days stake when China-led exact sent the cost of business enterprise commodities towering.
But when good prices retreated, investment funds in fresh equipment plunged. Regular today -- with mine output convalescent along with fuzz and smoothing iron ore prices -- Caterpillar says gross revenue to the manufacture proceed to whirl around as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that raise machinery sales could abide for eld - yet if ingrain prices recoil because of uncollectible atmospheric condition or former changes in provide.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Golden State investing unfaltering that lately took a hazard 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 go on to quite a little to showrooms lured by what Brand Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Lord Nelson traded in his John Deere unite with 1,000 hours on it for unmatched with simply 400 hours on it. The departure in Price between the deuce machines was hardly ended $100,000 - and the dealer offered to impart Lord Nelson that nitty-gritty interest-liberal 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)