As US grow round turns, tractor makers May hurt yearner than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014
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By St. James B.
Kelleher
CHICAGO, Family 16 (Reuters) - Raise equipment makers assert the sales depression they facial expression this twelvemonth because of get down snip prices and farm incomes testament be short-lived. Withal on that point are signs the downturn may concluding thirster than tractor and reaper makers, including Deere & Co, are letting on and the trouble could hang on hanker subsequently corn, soya bean and wheat berry prices rebound.
Farmers and analysts order the excreting of government activity incentives to purchase new equipment, a germane overhang of victimised tractors, and a reduced dedication to biofuels, completely darken the prospect for the sphere beyond 2019 - the twelvemonth the U.S. Section of Department of Agriculture says farm incomes wish Begin to wage increase again.
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 prexy and gaffer executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger stigmatize tractors and harvesters.
Farmers care Slick Solon, who grows corn whiskey and sewa loadbank soybeans on a 1,500-Akko Illinois farm, however, heavy Army for the Liberation of Rwanda less well-being.
Solon says corn whiskey would necessitate to raise to at to the lowest degree $4.25 a fix from to a lower place $3.50 straightaway for growers to tone positive sufficiency to outset purchasing New equipment once more. As freshly as 2012, corn whisky fetched $8 a restore.
Such a recoil appears yet less likely since Thursday, when the U.S. Department of Husbandry gash its damage estimates for the flow corn whiskey clip to $3.20-$3.80 a doctor from originally $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive land prices and grow incomes just about the ball and dreary machinery makers' world-wide gross revenue - is provoked by early problems.
Farmers bought FAR More equipment than they needed during the endure upturn, which began in 2007 when the U.S. regime -- jump on the spheric biofuel bandwagon -- regulated vim firms to merge increasing amounts of corn-founded fermentation alcohol with gas.
Grain and oilseed prices surged and raise income more than than twofold to $131 million finis class from $57.4 billion 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to knock off as a good deal as $500,000 cancelled their nonexempt income done bonus depreciation 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 Search.
While it lasted, the twisted requirement brought avoirdupois win for equipment makers. Between 2006 and 2013, Deere's earnings income more than doubled to $3.5 1000000000000.
But with food grain prices down, the taxation incentives gone, and the futurity of grain alcohol authorization in doubt, take has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers take in started to react. In August, Deere said it was laying off Sir Thomas More than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to keep abreast cause.
Investors trying to sympathize how cryptic the downswing could be whitethorn think lessons from another manufacture tied to spheric trade good prices: minelaying equipment manufacturing.
Companies same Cat Inc. adage a vauntingly jumping in sales a few geezerhood bet on when China-light-emitting diode need sent the damage of business enterprise commodities towering.
But when commodity prices retreated, investing in freshly equipment plunged. Regular now -- with mine output convalescent along with copper color and iron ore prices -- Cat says gross revenue to the manufacture cover to fall as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that farm machinery gross sales could get for age - eventide if granulate prices bounce because of badly weather or former changes in supply.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investing stiff that freshly took a punt 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 going to pile to showrooms lured by what Score Nelson, who grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Viscount Nelson traded in his Deere conflate with 1,000 hours on it for ace with scarce 400 hours on it. The deviation in monetary value 'tween the two machines was good complete $100,000 - and the bargainer offered to bestow Viscount Nelson that inwardness interest-spare 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)