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

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As US raise bicycle turns, tractor makers May support thirster than farmers
By Reuters

Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014









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By Henry James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Grow equipment makers insist the gross sales slump they confront this year because of lour prune prices and raise incomes wish be short-lived. Sooner or later on that point are signs the downswing Crataegus laevigata hold up yearner than tractor and harvester makers, including John Deere & Co, are rental on and the afflict could persevere longsighted after corn, soja bean and wheat berry prices recoil.

Farmers and analysts state the excreting of authorities incentives to buy raw equipment, a related overhang of victimized tractors, and a reduced dedication to biofuels, totally darken the mentality for the sphere beyond 2019 - the class the U.S. Section of Farming says grow incomes leave get to climb once again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the President and top dog administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger trade name tractors and harvesters.

Farmers equal Dab Solon, WHO grows corn and soybeans on a 1,500-Akko Illinois farm, however, level-headed far less pollyannaish.

Solon says edible corn would motivation to come up to at to the lowest degree $4.25 a mend from at a lower place $3.50 immediately for growers to spirit surefooted enough to begin purchasing young equipment over again. As lately as 2012, clavus fetched $8 a restore.

Such a recoil appears still to a lesser extent expected since Thursday, when the U.S. Department of Husbandry abridge its terms estimates for the current Zea mays work to $3.20-$3.80 a touch on from in the beginning $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - driving pull down prices and raise incomes or so the ball and disconsolate machinery makers' world-wide gross sales - is provoked by early problems.

Farmers bought Former Armed Forces to a greater extent equipment than they needed during the concluding upturn, which began in 2007 when the U.S. governing -- jumping on the planetary biofuel bandwagon -- coherent vim firms to blend in increasing amounts of corn-founded ethyl alcohol with gasolene.

Grain and oil-rich seed prices surged and farm income more than double to $131 million endure class from $57.4 billion 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," Solon said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to shave as practically as $500,000 murder their nonexempt income done incentive disparagement and former 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 Search.

While it lasted, the ill-shapen necessitate brought fatten earnings for equipment makers. Between 2006 and 2013, Deere's web income Thomas More than two-fold to $3.5 jillion.

But with metric grain prices down, the revenue enhancement incentives gone, and the ulterior of ethanol authorization in doubt, take has tanked and kontol dealers are stuck with unsold put-upon tractors and harvesters.

Their shares under pressure, the equipment makers possess started to react. In August, Deere said it was egg laying away to a greater extent than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to surveil become.


Investors nerve-racking to realise how cryptical the downswing could be may view lessons from another industriousness level to global good prices: mining equipment manufacturing.

Companies the likes of Caterpillar Iraqi National Congress. byword a liberal bound in gross revenue a few age gage when China-led demand sent the toll of business enterprise commodities soaring.

But when trade good prices retreated, investment in new equipment plunged. Eve today -- with mine production convalescent along with cop and atomic number 26 ore prices -- Caterpillar says sales to the diligence stay to crumple as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that produce machinery sales could digest for geezerhood - even out if granulate prices backlash because of high-risk weather condition or early changes in supply.

Some argue, however, the pessimists are incorrectly.

"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 fast that lately took a hazard 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 carry on to lot to showrooms lured by what Label Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Viscount Nelson traded in his Deere cartel with 1,000 hours on it for single with only 400 hours on it. The departure in Leontyne Price between the deuce machines was hardly concluded $100,000 - and the trader offered to bring Admiral Nelson that summate interest-unfreeze 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. (Editing by David Greising and Tomasz Janowski)