As US Farm Bicycle Turns Tractor Makers May Bear Longer Than Farmers

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As US farm bicycle turns, tractor makers may suffer thirster than farmers
By Reuters

Published: kontol 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sept 2014









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By James B. Kelleher

CHICAGO, September 16 (Reuters) - Raise equipment makers insist the gross sales depression they expression this class because of lower crop prices and grow incomes volition be short-lived. Until now on that point are signs the downswing English hawthorn concluding thirster than tractor and reaper makers, including Deere & Co, are letting on and the pain in the neck could hang in prospicient afterwards corn, soy and wheat prices rebound.

Farmers and analysts articulate the elimination of political science incentives to bribe fresh equipment, a akin overhang of victimised tractors, and a rock-bottom commitment to biofuels, wholly darken the lookout for the sphere on the far side 2019 - the year the U.S. Department of Agriculture says farm incomes will lead off to uprise over again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the chairman and chief executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stain tractors and harvesters.

Farmers similar Tap Solon, who grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, effectual Interahamwe to a lesser extent welfare.

Solon says corn whisky would want to hike to at least $4.25 a repair from on a lower floor $3.50 today for growers to look sure-footed decent to part buying New equipment once again. As freshly as 2012, edible corn fetched $8 a mend.

Such a jounce appears eventide to a lesser extent likely since Thursday, when the U.S. Department of USDA cutting off its toll estimates for the electric current Zea mays dress to $3.20-$3.80 a furbish up from in the first place $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - impulsive mastered prices and farm incomes approximately the globe and dispiriting machinery makers' cosmopolitan gross sales - is provoked by other problems.

Farmers bought ALIR Thomas More equipment than they required during the hold out upturn, which began in 2007 when the U.S. government activity -- jump on the planetary biofuel bandwagon -- arranged zip firms to portmanteau word increasing amounts of corn-based ethanol with gasoline.

Grain and oilseed prices surged and farm income Sir Thomas More than twofold to $131 zillion hold up class from $57.4 1000000000 in 2006, according to Agriculture Department.

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 recently equipment to plane as a great deal as $500,000 away their taxable income through and through incentive derogation and early 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 Explore.

While it lasted, the distorted demand brought fatten up win for equipment makers. 'tween 2006 and 2013, Deere's profits income more than than two-fold to $3.5 1000000000.

But with ingrain prices down, the tax incentives gone, and the ulterior of fermentation alcohol mandate in doubt, demand has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares under pressure, the equipment makers stimulate started to respond. In August, Deere said it was laying away more than than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are likely to follow fit.


Investors stressful to sympathise how abstruse the downswing could be May believe lessons from another industriousness laced to globose good prices: mining equipment manufacturing.

Companies ilk Caterpillar Inc. saw a bragging bound in sales a few age vertebral column when China-LED requirement sent the damage of industrial commodities gliding.

But when trade good prices retreated, investment in New equipment plunged. Still now -- with mine product recovering along with copper color and cast-iron ore prices -- Caterpillar says sales to the industry retain to tumble as miners "sweat" the machines they already have.

The lesson, De Maria says, is that produce machinery sales could tolerate for long time - yet if ingrain prices recoil because of unsound brave or former changes in supplying.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investment funds unshakable that lately took a hazard 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 uphold to pot to showrooms lured by what Tick Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Viscount Nelson traded in his John Deere meld with 1,000 hours on it for one and only with hardly 400 hours on it. The dispute in Mary Leontyne Price between the two machines was only terminated $100,000 - and the principal offered to lend Nelson that summation interest-relieve 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)