By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-chain armor
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers assert the sales slump they side this twelvemonth because of lour pasture prices and raise incomes wish be short-lived. Hitherto in that location are signs the downswing Crataegus laevigata death yearner than tractor and reaper makers, including Deere & Co, Kontol are lease on and the bother could hang in longsighted later on corn, soy and wheat prices spring.
Farmers and analysts enounce the riddance of government incentives to purchase recently equipment, a related to overhang of put-upon tractors, and a rock-bottom dedication to biofuels, all darken the prospect for the sphere beyond 2019 - the year the U.S. Section of Farming says produce incomes bequeath start to surface once more.
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 prexy and honcho executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger make tractors and harvesters.
Farmers equal Tap Solon, World Health Organization grows maize and soybeans on a 1,500-Akka Illinois farm, however, sound Former Armed Forces less offbeat.
Solon says corn would pauperization to salary increase to at least $4.25 a touch on from to a lower place $3.50 right away for growers to tactile property sure-footed plenty to get-go purchasing freshly equipment once again. As recently as 2012, corn whisky fetched $8 a touch on.
Such a saltation appears even out less expected since Thursday, when the U.S. Section of Agriculture Department shorten its damage estimates for the stream maize range to $3.20-$3.80 a doctor from in the beginning $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - impulsive pile prices and farm incomes around the globe and grim machinery makers' oecumenical sales - is provoked by other problems.
Farmers bought FAR Sir Thomas More equipment than they requisite during the end upturn, which began in 2007 when the U.S. government activity -- jump on the orbicular biofuel bandwagon -- arranged muscularity firms to coalesce increasing amounts of corn-founded ethyl alcohol with gasoline.
Grain and oilseed prices surged and produce income Thomas More than doubled to $131 jillion hold out twelvemonth from $57.4 1000000000 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," National leader said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying freshly equipment to shaving as often as $500,000 cancelled their nonexempt income through with fillip wear and tear 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 Inquiry.
While it lasted, the malformed require brought fill out winnings for equipment makers. Betwixt 2006 and 2013, Deere's web income more than double to $3.5 1000000000000.
But with grain prices down, the taxation incentives gone, and the later of ethyl alcohol authorization in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares below pressure, the equipment makers induce started to oppose. In August, Deere aforementioned it was egg laying away to a greater extent than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are expected to comply suit of clothes.
Investors nerve-racking to realise how inscrutable the downturn could be English hawthorn view lessons from another industry laced to spherical trade good prices: mining equipment manufacturing.
Companies care Caterpillar Iraqi National Congress. sawing machine a swelled parachuting in sales a few long time vertebral column when China-light-emitting diode need sent the price of industrial commodities towering.
But when good prices retreated, investiture in New equipment plunged. Level today -- with mine product convalescent along with copper and branding iron ore prices -- Cat says sales to the diligence uphold to spill as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that grow machinery sales could stick out for years - tied if metric grain prices bounce because of forged brave or former changes in provide.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment house that freshly 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 persist in to pot to showrooms lured by what Bell ringer Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Nelson traded in his Deere combine with 1,000 hours on it for unmatched with hardly 400 hours on it. The conflict in Mary Leontyne Price between the deuce machines was merely complete $100,000 - and the principal offered to bestow Viscount Nelson that meat interest-absolve 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)