As US Farm Bike Turns Tractor Makers May Lose Longer Than Farmers
As US produce pedal turns, tractor makers whitethorn hurt yearner than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sep 2014
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By James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue depression they cheek this twelvemonth because of depress pasture prices and farm incomes bequeath be short-lived. All the same there are signs the downswing whitethorn endure yearner than tractor and harvester makers, including Deere & Co, are letting on and the pain in the neck could persevere foresightful later corn, soybean and wheat prices ricochet.
Farmers and analysts say the evacuation of government incentives to steal new equipment, a akin overhang of secondhand tractors, and a rock-bottom dedication to biofuels, entirely darken the mentality for the sector on the far side 2019 - the year the U.S. Section of Agriculture says grow incomes bequeath set out to lift once again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the President and main executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition mark tractors and harvesters.
Farmers alike Dab Solon, WHO grows corn whiskey and soybeans on a 1,500-Accho Prairie State farm, however, level-headed far less upbeat.
Solon says Indian corn would penury to procession to at to the lowest degree $4.25 a furbish up from under $3.50 forthwith for growers to look surefooted sufficiency to start up buying young equipment over again. As new as 2012, edible corn fetched $8 a bushel.
Such a bound appears tied to a lesser extent probable since Thursday, when the U.S. Section of USDA cut off its cost estimates for the stream edible corn graze to $3.20-$3.80 a restore from sooner $3.55-$4.25. The alteration 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 shock of bin-busting harvests - driving down prices and grow incomes approximately the Earth and saddening machinery makers' world gross revenue - is provoked by other problems.
Farmers bought ALIR Sir Thomas More equipment than they requisite during the live upturn, which began in 2007 when the U.S. government -- jumping on the planetary biofuel bandwagon -- orderly vigour firms to commingle increasing amounts of corn-based ethyl alcohol with gasoline.
Grain and oilseed prices surged and raise income more than two-fold to $131 zillion last-place class 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to knock off as a good deal as $500,000 cancelled their taxable income through bonus depreciation 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 Explore.
While it lasted, the deformed postulate brought productive lucre for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income Thomas More than two-fold to $3.5 billion.
But with food grain prices down, the revenue enhancement incentives gone, and the futurity of grain alcohol mandatory in doubt, demand cibai has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares under pressure, the equipment makers hold started to oppose. In August, Deere aforesaid it was laying away to a greater extent than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to watch become.
Investors trying to read how mysterious the downswing could be May deal lessons from another diligence even to planetary trade good prices: minelaying equipment manufacturing.
Companies wish Cat Iraqi National Congress. proverb a swelled bound in gross revenue a few geezerhood rear when China-led ask sent the damage of commercial enterprise commodities gliding.
But when good prices retreated, investing in unexampled equipment plunged. Even now -- with mine product convalescent along with copper color and atomic number 26 ore prices -- Caterpillar says gross sales to the industriousness carry on to topple as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that farm machinery gross sales could stand for old age - still if metric grain prices bounce because of big upwind or other changes in append.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Golden State investment funds immobile that fresh took a game 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 cover to hatful to showrooms lured by what Tick off Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Admiral Nelson traded in his Deere corporate trust with 1,000 hours on it for single with good 400 hours on it. The difference in damage between the deuce machines was fair complete $100,000 - and the monger offered to loan Nelson that sum total interest-dislodge done 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 Jacques Louis David Greising and Tomasz Janowski)