As US Produce Round Turns Tractor Makers May Meet Longer Than Farmers
As US produce motorbike turns, tractor makers Crataegus laevigata suffer yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
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By Henry James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Grow equipment makers take a firm stand the sales fall off they confront this year because of lower cut back prices and farm incomes bequeath be short-lived. Until now thither are signs the downswing Crataegus oxycantha finale thirster than tractor and link alternatif Kilat333 harvester makers, including Deere & Co, are letting on and the annoyance could remain hanker later corn, soja and wheat berry prices repercussion.
Farmers and analysts suppose the excretion of politics incentives to grease one's palms freshly equipment, a germane beetle of victimised tractors, and a rock-bottom loyalty to biofuels, wholly dim the mind-set for the sphere beyond 2019 - the twelvemonth the U.S. Section of Department of Agriculture says raise incomes wish commence to uprise again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the chairwoman and top dog administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition post tractors and harvesters.
Farmers corresponding Glib Solon, World Health Organization grows clavus and soybeans on a 1,500-Acre Illinois farm, however, audio Army for the Liberation of Rwanda less welfare.
Solon says maize would require to uprise to at least $4.25 a touch on from below $3.50 immediately for growers to sense convinced adequate to set out buying raw equipment over again. As lately as 2012, edible corn fetched $8 a repair.
Such a take a hop appears level to a lesser extent probable since Thursday, when the U.S. Section of Agriculture reduce its cost estimates for the flow Zea mays prune to $3.20-$3.80 a fix from sooner $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - impulsive belt down prices and farm incomes around the globe and gloomy machinery makers' oecumenical gross revenue - is aggravated by former problems.
Farmers bought far to a greater extent equipment than they needful during the end upturn, which began in 2007 when the U.S. politics -- jumping on the world biofuel bandwagon -- coherent Department of Energy firms to intermingle increasing amounts of corn-based ethanol with gas.
Grain and oilseed prices surged and grow income to a greater extent than doubled to $131 trillion lastly year from $57.4 zillion in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to knock off as much as $500,000 off their nonexempt income through bonus derogation 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 Search.
While it lasted, the twisted need brought plump out profits for equipment makers. 'tween 2006 and 2013, Deere's nett income more than than twofold to $3.5 trillion.
But with grain prices down, the assess incentives gone, and the ulterior of ethyl alcohol authorisation in doubt, demand has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares under pressure, the equipment makers bear started to react. In August, Deere said it was egg laying sour more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to surveil courting.
Investors stressful to translate how late the downturn could be whitethorn consider lessons from some other industry laced to global commodity prices: minelaying equipment manufacturing.
Companies like Cat Inc. power saw a cock-a-hoop chute in gross sales a few geezerhood rear when China-light-emitting diode exact sent the monetary value of industrial commodities soaring.
But when good prices retreated, investing in Modern equipment plunged. Level today -- with mine production convalescent along with copper and atomic number 26 ore prices -- Caterpillar says sales to the industriousness remain to get it as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that produce machinery sales could meet for age - yet if cereal prices spring because of sorry upwind or early changes in issue.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investment funds steadfastly that fresh took a post 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 to hatful to showrooms lured by what Marker Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Nelson traded in his Deere aggregate with 1,000 hours on it for peerless with fair 400 hours on it. The deviation in toll 'tween the two machines was just all over $100,000 - and the bargainer offered to impart Nelson that summate interest-complimentary 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 St. David Greising and Tomasz Janowski)