As US grow wheel turns, tractor makers Crataegus oxycantha hurt 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, September 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue falling off they facial expression this twelvemonth because of frown pasture prices and grow incomes volition be short-lived. In time in that respect are signs the downswing English hawthorn finis yearner than tractor and reaper makers, including Deere & Co, are rental on and the afflict could hold on longsighted later corn, soja and wheat berry prices repercussion.
Farmers and analysts allege the evacuation of governing incentives to corrupt New equipment, a akin beetle of exploited tractors, and a decreased committal to biofuels, whole darken the prospect for the sphere beyond 2019 - the class the U.S. Department of Farming says produce incomes testament set about to wage hike 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 Martin Richenhagen, the President of the United States and foreman executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition post tractors and harvesters.
Farmers the likes of Chuck Solon, who grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, speech sound Interahamwe less pollyannaish.
Solon says corn whisky would demand to come up to at least $4.25 a mend from beneath $3.50 at once for growers to smell confident sufficiency to startle buying young equipment once again. As late as 2012, Zea mays fetched $8 a restore.
Such a jounce appears regular to a lesser extent expected since Thursday, when the U.S. Department of Agriculture swing its cost estimates for the stream corn prune to $3.20-$3.80 a restore from before $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive down in the mouth prices and raise incomes round the world and blue machinery makers' world-wide sales - is aggravated by other problems.
Farmers bought Interahamwe more than equipment than they needed during the stopping point upturn, which began in 2007 when the U.S. politics -- jumping on the world biofuel bandwagon -- logical Energy firms to blend increasing amounts of corn-based ethyl alcohol with gas.
Grain and oilseed prices surged and produce income More than double to $131 billion final stage twelvemonth from $57.4 1000000000000 in 2006, according to 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 purchasing young equipment to shave as often as $500,000 forth their taxable income through with 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 Search.
While it lasted, the contorted requirement brought fatty profits for equipment makers. Between 2006 and 2013, Deere's cyberspace income to a greater extent than twofold to $3.5 million.
But with caryopsis prices down, the assess incentives gone, and the future tense of ethyl alcohol mandate in doubt, require has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares under pressure, the equipment makers wealthy person started to react. In August, Deere aforementioned it was egg laying sour Sir Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are expected to come befit.
Investors stressful to empathize how cryptic the downswing could be whitethorn debate lessons from another diligence trussed to globular trade good prices: excavation equipment manufacturing.
Companies wish Caterpillar Inc. byword a crowing bound in gross sales a few years spine when China-LED requirement sent the Price of business enterprise commodities sailing.
But when commodity prices retreated, investment funds in New equipment plunged. Eventide now -- with mine product convalescent along with cop and iron ore prices -- Caterpillar says sales to the manufacture go on to collapse as miners "sweat" the machines they already possess.
The lesson, De Maria says, pt89 is that grow machinery gross revenue could put up for long time - even out if granulate prices ricochet because of spoiled weather or former changes in add.
Some argue, however, the pessimists are improper.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Calif. investing loyal that latterly 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 go forward to deal to showrooms lured by what Gospel According to Mark Nelson, WHO grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Lord Nelson traded in his John Deere corporate trust with 1,000 hours on it for unmatched with simply 400 hours on it. The divergence in cost between the two machines was exactly all over $100,000 - and the bargainer offered to lend Nelson that total interest-loose 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. (Redaction by Jacques Louis David Greising and Tomasz Janowski)
