Ethanol To Boost Equipment Sales
Growing farmer confidence that the rapidly expanding ethanol industry could sustain high commodity prices may bolster farm equipment sales in 2007, an industry analyst tells Reuters News Service.
Agricultural equipment sales were disappointing in 2006, which was unusual because corn prices were at decade-highs and soybean prices were at two-year highs, analysts say. Farmers typically upgrade equipment at times when prices are high.
But the unique nature of the latest rally in grain prices was beginning to change the minds of some farmers skeptical that prices would remain high.
"Before when you had a spike in corn prices, it was a function of supply. Your corn prices went higher but you had less corn to sell," says Credit Suisse industrial machinery analyst Jamie Cook, citing the last time U.S. corn prices were at current levels after the drought of 1995.
"This time it's different in that demand is driving the corn prices higher so we have higher prices, more corn, which means more money in the farmer's pocket," Cook tells Reuters.
"Farmers are less dependent on farm subsidies when corn is at $4," Cook says. "Farmers generally tend to buy more when their income is demand driven versus getting a handout from the government."
Some farmers may have doubted the staying power of the price rally or elected to buy fertilizer or seed for the new crop year before upgrading aging equipment.
The ethanol boom and high crop prices were already priced into most farm equipment company stocks, although analysts at Credit Suisse raised their price target for top agricultural equipment manufacturer Deere & Co.
"Given their large position in North America and the large horsepower tractors and combines we have that rated as an outperform at a $112 price target," Cook tells Reuters.
Deere & Co. shares were trading at $99.89 late Wednesday.
Editor’s note: Richard Brock, The Corn And Soybean Digest's Marketing Editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.
To see more market perspectives, visit Brock's Web site at www.brockreport.com.