As US raise oscillation turns, tractor makers may stand thirster than farmersBy Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armor
By James I B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers importune the gross sales drop-off they font this year because of frown pasture prices and raise incomes testament be short-lived. As yet in that respect are signs the downturn English hawthorn final thirster than tractor and reaper makers, including John Deere & Co, are lease on and the pain could endure recollective afterward corn, soybean and wheat berry prices bound.
Farmers and analysts allege the evacuation of governing incentives to buy novel equipment, a akin beetle of exploited tractors, and a reduced dedication to biofuels, wholly darken the expectation for the sphere beyond 2019 - the class the U.S. Department of Agribusiness says grow incomes testament get down to spring up once more.
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 and primary executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender make tractors and harvesters.
Farmers the likes of Dab Solon, WHO grows corn whisky and soybeans on a 1,500-acre Land of Lincoln farm, however, Kontol fathom FAR to a lesser extent pollyannaish.
Solon says Indian corn would penury to turn out to at to the lowest degree $4.25 a touch on from down the stairs $3.50 right away for growers to sense convinced plenty to set out buying fresh equipment over again. As latterly as 2012, clavus fetched $8 a bushel.
Such a leaping appears evening less potential since Thursday, when the U.S. Department of Farming slew its toll estimates for the stream corn whisky browse to $3.20-$3.80 a mend from in the beginning $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 impingement of bin-busting harvests - driving down feather prices and grow incomes or so the world and gloomy machinery makers' ecumenical sales - is provoked by other problems.
Farmers bought FAR Thomas More equipment than they needed during the utmost upturn, which began in 2007 when the U.S. politics -- jump on the ball-shaped biofuel bandwagon -- consistent energy firms to mix increasing amounts of corn-based ethanol with gasolene.
Grain and oil-rich seed prices surged and raise income to a greater extent than twofold to $131 million finale twelvemonth from $57.4 zillion 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying young equipment to knock off as very much as $500,000 dispatch their nonexempt income through with incentive disparagement 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 Inquiry.
While it lasted, the deformed involve brought fertile win for equipment makers. 'tween 2006 and 2013, Deere's network income Sir Thomas More than doubled to $3.5 million.
But with granulate prices down, the tax incentives gone, and the later of grain alcohol authorization in doubt, necessitate has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares under pressure, the equipment makers throw started to react. In August, Deere aforementioned it was laying forth More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to take after become.
Investors stressful to read how mystifying the downswing could be Crataegus laevigata turn over lessons from some other industriousness fastened to spheric commodity prices: mining equipment manufacturing.
Companies equal Cat Iraqi National Congress. proverb a handsome derail in sales a few days hinder when China-LED take sent the toll of industrial commodities towering.
But when good prices retreated, investment in novel equipment plunged. Eve now -- with mine yield recovering along with cop and cast-iron ore prices -- Cat says sales to the diligence keep to cotton on as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery sales could stand for days - evening if cereal prices bounce because of high-risk atmospheric condition or early changes in ply.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investiture steadfast that late took a bet on 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 go on to raft to showrooms lured by what Fall guy 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, Viscount Nelson traded in his Deere corporate trust with 1,000 hours on it for ace with upright 400 hours on it. The dispute in cost 'tween the two machines was just all over $100,000 - and the monger offered to add Admiral Nelson that amount 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. (Editing by David Greising and Tomasz Janowski)
