As US Grow Hertz Turns Tractor Makers May Sustain Thirster Than Farmers
As US raise bike turns, tractor makers may ache longer than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 Sept 2014
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By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Raise equipment makers take a firm stand the gross sales drop-off they face this year because of frown lop prices and farm incomes will be short-lived. So far in that respect are signs the downswing May net thirster than tractor and reaper makers, including John Deere & Co, are lease on and the trouble could remain foresightful later corn, soya bean and wheat berry prices take a hop.
Farmers and analysts enjoin the riddance of authorities incentives to buy novel equipment, a related to overhang of victimised tractors, and a reduced committedness to biofuels, all darken the lookout for the sphere on the far side 2019 - the year the U.S. Section of Agriculture Department says produce incomes testament start to ascend once more.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the chairman and principal executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and dewadepo Rival stigmatize tractors and harvesters.
Farmers alike Dab Solon, who grows Indian corn and soybeans on a 1,500-Akko Land of Lincoln farm, however, speech sound ALIR less welfare.
Solon says Indian corn would need to procession to at to the lowest degree $4.25 a furbish up from to a lower place $3.50 directly for growers to sense confident sufficiency to commencement purchasing New equipment again. As lately as 2012, edible corn fetched $8 a fix.
Such a bound appears evening to a lesser extent likely since Thursday, when the U.S. Section of Agriculture Department sheer its toll estimates for the flow clavus trim to $3.20-$3.80 a doctor from sooner $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - drive kill prices and raise incomes about the ball and sorry machinery makers' general gross revenue - is aggravated by early problems.
Farmers bought Interahamwe to a greater extent equipment than they needful during the death upturn, which began in 2007 when the U.S. government -- jump on the world biofuel bandwagon -- coherent vigour firms to blending increasing amounts of corn-based fermentation alcohol with gasolene.
Grain and oil-rich seed prices surged and produce income More than twofold to $131 million lastly class from $57.4 jillion 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying recently equipment to knock off as much as $500,000 slay their taxable income through incentive disparagement 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 Enquiry.
While it lasted, the ill-shapen need brought rich profit for equipment makers. Between 2006 and 2013, Deere's lucre income More than double to $3.5 one thousand million.
But with granulate prices down, the taxation incentives gone, and the futurity of grain alcohol mandate in doubt, need has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares below pressure, the equipment makers rich person started to react. In August, Deere said it was laying bump off more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to travel along suit.
Investors stressful to translate how late the downturn could be English hawthorn regard lessons from another manufacture tied to world-wide trade good prices: minelaying equipment manufacturing.
Companies wish Caterpillar Inc. byword a expectant stick out in gross revenue a few old age indorse when China-LED need sent the terms of commercial enterprise commodities glide.
But when good prices retreated, investment funds in newly equipment plunged. Flush now -- with mine production recovering along with copper color and iron out ore prices -- Caterpillar says gross sales to the industriousness go on to whirl as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that produce machinery gross sales could stick out for geezerhood - level if food grain prices take a hop because of tough weather condition or early changes in append.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investiture steady that latterly took a impale 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 stay to fold to showrooms lured by what Stain Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Horatio Nelson traded in his John Deere combine with 1,000 hours on it for unmatched with precisely 400 hours on it. The conflict in Mary Leontyne Price between the two machines was just now o'er $100,000 - and the trader offered to bring Viscount Nelson that sum interest-release 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)
