By Jesse Newman and Bob Tita
Many U.S. farmers are expected to tighten their belts further in
2015 as they contend with another year of lower grain and soybean
prices--economizing that could pinch the companies that sell them
equipment and supplies.
Fall 2014 brought the U.S.'s second straight bumper harvest of
major crops. While prices have rebounded in recent months from
their lows, they are still projected to remain depressed through
2015, with futures prices for corn staying below $4 a bushel, and
soybean prices drifting lower to $9 a bushel, according to
agricultural lender Rabobank.
Austerity in the farm economy comes on the heels of a
commodity-price boom that helped fuel prosperity across the U.S.
Midwest through 2013, driving farm incomes and land values to
record highs-and fueling the North America farm-machinery market's
biggest and longest rally in memory.
"There are a lot of adjustments to come in the entire
agricultural sector," said Chris Hurt, professor of agricultural
economics at Purdue University in Indiana.
He said farmers likely will curb spending on farm equipment,
making do with tractors and combines they already own and squeezing
profits for manufacturers like Deere & Co. Demand for farm
supplies like fertilizer and seeds also could slow, which would
hurt companies like Monsanto Co.
Manufacturers are hoping that 2015 will end the slump. Deere,
the world's largest seller of farm equipment, has implied that
North American unit sales of high-horsepower tractors--a market it
dominates--could be down 40% in 2015 from 2014, when industrywide
sales sank about 15%. Deere and some analysts reckon that should be
enough of a break from buying for farmers to return to the market
in 2016.
"I don't see 2016 being worse than 2015," said Morningstar Inc.
analyst Kwame Webb, who expects crop prices to firm in 2015,
helping to raise farmers' incomes.
Other analysts aren't convinced that an upturn is on the
horizon. Rob Wertheimer, an analyst for Vertical Research Partners,
notes that even if sales of big tractors fall 40% in 2015, the
number of tractors sold would still be 38% higher than the volume
in the market's last trough in 2002. He said sales likely need to
fall further to resemble earlier market slumps.
Write to Jesse Newman at jesse.newman@wsj.com and Bob Tita at
robert.tita@wsj.com
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