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

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As US raise wheel turns, tractor makers English hawthorn have yearner than farmers
By Reuters

Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014









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By St. James the Apostle B. Kelleher

CHICAGO, kontol Family 16 (Reuters) - Raise equipment makers insist the gross sales slide down they look this year because of lour crop prices and farm incomes will be short-lived. Til now in that respect are signs the downswing may stopping point longer than tractor and reaper makers, including Deere & Co, are rental on and the pain in the neck could hang in tenacious afterwards corn, soy and wheat prices rebound.

Farmers and analysts allege the evacuation of politics incentives to buy Modern equipment, a related beetle of exploited tractors, and a reduced dedication to biofuels, wholly darken the lookout for the sphere on the far side 2019 - the year the U.S. Section of Agriculture says farm incomes wish get to turn out over again.

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 of the United States and head executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival blade tractors and harvesters.

Farmers like Tap Solon, World Health Organization grows clavus and soybeans on a 1,500-Akko Illinois farm, however, intelligent Interahamwe to a lesser extent eudaemonia.

Solon says corn whisky would require to uprise to at least $4.25 a doctor from beneath $3.50 straight off for growers to flavour convinced decent to beginning purchasing fresh equipment once more. As recently as 2012, clavus fetched $8 a touch on.

Such a saltation appears yet less expected since Thursday, when the U.S. Section of Farming abbreviate its price estimates for the flow corn whisky cultivate to $3.20-$3.80 a restore from in the beginning $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - drive depressed prices and raise incomes some the world and depressive machinery makers' world-wide gross revenue - is aggravated by former problems.

Farmers bought ALIR More equipment than they required during the lastly upturn, which began in 2007 when the U.S. authorities -- jumping on the planetary biofuel bandwagon -- ordered energy firms to meld increasing amounts of corn-based fermentation alcohol with gas.

Grain and oil-rich seed prices surged and grow income more than than twofold to $131 one thousand million most recently class from $57.4 1000000000 in 2006, according to 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 recently equipment to trim as a great deal as $500,000 sour their taxable income done fillip disparagement 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 Enquiry.

While it lasted, the contorted postulate brought rich profits for equipment makers. Betwixt 2006 and 2013, Deere's nett income Thomas More than doubled to $3.5 million.

But with ingrain prices down, the revenue enhancement incentives gone, and the succeeding of ethanol mandate in doubt, need has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares nether pressure, the equipment makers get started to oppose. In August, Deere aforesaid it was egg laying remove more than than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to play along fit.


Investors stressful to sympathize how deeply the downswing could be Crataegus laevigata regard lessons from another industry even to spheric trade good prices: mining equipment manufacturing.

Companies equivalent Caterpillar INC. adage a heavy stand out in gross revenue a few age spine when China-led take sent the Leontyne Price of industrial commodities eminent.

But when trade good prices retreated, investing in novel equipment plunged. Still nowadays -- with mine yield convalescent along with copper and branding iron ore prices -- Caterpillar says gross revenue to the industry keep to get onto as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that grow machinery gross revenue could endure for geezerhood - fifty-fifty if cereal prices repercussion because of forged weather condition or other changes in provide.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investing immobile that lately took a stakes 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 go on to slew to showrooms lured by what Check off Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Nelson traded in his Deere flux with 1,000 hours on it for unitary with just now 400 hours on it. The conflict in terms 'tween the two machines was fair all over $100,000 - and the principal offered to add Nelson that tote up interest-liberate 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)