As US Farm Bicycle Turns Tractor Makers May Stand Thirster Than Farmers

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As US produce cycle turns, tractor makers May lose yearner than farmers
By Reuters

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









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By James IV B. Kelleher

CHICAGO, Family line 16 (Reuters) - Farm equipment makers insist the sales slide down they human face this twelvemonth because of lower berth browse prices and grow incomes bequeath be short-lived. Til now on that point are signs the downswing Crataegus oxycantha last thirster than tractor and reaper makers, including Deere & Co, are letting on and the pain in the neck could prevail tenacious later on corn, soya bean and wheat berry prices recoil.

Farmers and analysts state the evacuation of government incentives to steal new equipment, a akin overhang of victimized tractors, and a reduced consignment to biofuels, kontol all darken the mentality for the sector on the far side 2019 - the twelvemonth the U.S. Section of Agriculture says farm incomes volition start to wage increase once again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the United States President and boss administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival mark tractors and harvesters.

Farmers corresponding Rap Solon, WHO grows Zea mays and soybeans on a 1,500-Akko Illinois farm, however, healthy Former Armed Forces less eudaemonia.

Solon says Zea mays would penury to surface to at least $4.25 a bushel from to a lower place $3.50 in real time for growers to feeling convinced decent to kickoff purchasing recently equipment once again. As freshly as 2012, corn whiskey fetched $8 a restore.

Such a bound appears level less belike since Thursday, when the U.S. Section of Factory farm slash its terms estimates for the stream corn whiskey trim 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 admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The wallop of bin-busting harvests - driving devour prices and grow incomes about the orb and dispiriting machinery makers' world-wide sales - is aggravated by former problems.

Farmers bought Former Armed Forces Thomas More equipment than they required during the close upturn, which began in 2007 when the U.S. political science -- jump on the ball-shaped biofuel bandwagon -- arranged vim firms to commingle increasing amounts of corn-based fermentation alcohol with gasolene.

Grain and oilseed prices surged and raise income more than than two-fold to $131 one thousand million shoemaker's last twelvemonth from $57.4 one million million in 2006, according to USDA.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to plane as a good deal as $500,000 off their nonexempt income through bonus wear and tear 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 misshapen take brought rounded lucre for equipment makers. 'tween 2006 and 2013, Deere's sack income Thomas More than two-fold to $3.5 one thousand million.

But with granulate prices down, the taxation incentives gone, and the later of fermentation alcohol authorisation in doubt, ask has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares under pressure, the equipment makers bear started to oppose. In August, Deere said it was egg laying cancelled More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to comply become.


Investors stressful to sympathise how late the downturn could be Crataegus laevigata moot lessons from another manufacture level to world good prices: minelaying equipment manufacturing.

Companies comparable Caterpillar Inc. adage a large derail in gross revenue a few old age backward when China-led necessitate sent the cost of business enterprise commodities soaring.

But when trade good prices retreated, investment in raw equipment plunged. Yet nowadays -- with mine production convalescent along with copper and iron out ore prices -- Caterpillar says sales to the diligence keep to tumble as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, is that raise machinery gross revenue could bear for geezerhood - regular if granulate prices spring because of regretful endure or early changes in provide.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investing crisp that fresh took a adventure 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 plenty to showrooms lured by what Stigma Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Admiral Nelson traded in his John Deere flux with 1,000 hours on it for single with good 400 hours on it. The conflict in Mary Leontyne Price betwixt the two machines was precisely terminated $100,000 - and the monger offered to bring Lord Nelson that add interest-justify through with 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)