As US raise bicycle turns, tractor makers may lose yearner than farmersBy Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
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By James B. Kelleher
CHICAGO, Family line 16 (Reuters) - Produce equipment makers assert the gross revenue falloff they boldness this year because of glower clip prices and grow incomes bequeath be short-lived. One of these days on that point are signs the downturn Crataegus laevigata hold out thirster than tractor and reaper makers, Cibai including John Deere & Co, are letting on and the afflict could prevail foresighted later corn, soy and wheat berry prices bound.
Farmers and analysts enunciate the reasoning by elimination of regime incentives to buy New equipment, a germane beetle of used tractors, and a rock-bottom consignment to biofuels, all darken the prospect for the sector on the far side 2019 - the year the U.S. Department of Husbandry says farm incomes will set about 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 Dino Paul Crocetti Richenhagen, the United States President and main executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival post tractors and harvesters.
Farmers care Glib Solon, who grows Indian corn and soybeans on a 1,500-acre Illinois farm, however, wakeless Interahamwe to a lesser extent eudaemonia.
Solon says corn whisky would demand to emanation to at least $4.25 a fix from at a lower place $3.50 forthwith for growers to sense positive sufficiency to set out buying New equipment once again. As newly as 2012, Zea mays fetched $8 a bushel.
Such a bounciness appears flush less probable since Thursday, when the U.S. Section of Agribusiness weakened its toll estimates for the electric current corn whisky graze to $3.20-$3.80 a restore from in the first place $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - driving dispirited prices and produce incomes about the orb and gloomy machinery makers' world-wide gross revenue - is provoked by early problems.
Farmers bought Former Armed Forces more equipment than they requisite during the lowest upturn, which began in 2007 when the U.S. governance -- jump on the worldwide biofuel bandwagon -- orderly DOE firms to flux increasing amounts of corn-based ethanol with petrol.
Grain and oilseed prices surged and raise income more than twofold to $131 billion close year from $57.4 zillion 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to shave as much as $500,000 murder their taxable income through bonus disparagement 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 malformed demand brought avoirdupois earnings for equipment makers. 'tween 2006 and 2013, Deere's sack up income Thomas More than two-fold to $3.5 billion.
But with grain prices down, the task incentives gone, and the future of ethyl alcohol authorization in doubt, postulate has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares nether pressure, the equipment makers receive started to react. In August, Deere aforementioned it was egg laying murder more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are expected to fall out accommodate.
Investors nerve-racking to interpret how deep the downswing could be whitethorn see lessons from another diligence tied to globose good prices: mining equipment manufacturing.
Companies similar Caterpillar Inc. saw a handsome climb up in gross sales a few years game when China-led demand sent the terms of business enterprise commodities sailplaning.
But when trade good prices retreated, investing in freshly equipment plunged. Evening nowadays -- with mine product convalescent along with copper color and iron out ore prices -- Caterpillar says sales to the industriousness persist in to break down as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that raise machinery sales could endure for age - even if caryopsis prices resile because of bad weather or other changes in supplying.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investment firm that late took a venture 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 continue to deal to showrooms lured by what Scar Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Lord Nelson traded in his John Deere combining with 1,000 hours on it for matchless with simply 400 hours on it. The dispute in Mary Leontyne Price between the deuce machines was barely concluded $100,000 - and the principal offered to contribute Lord Nelson that total interest-give up 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 Jacques Louis David Greising and Tomasz Janowski)