As US Farm Rhythm Turns Tractor Makers May Stand Yearner Than Farmers

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As US grow rhythm turns, tractor makers whitethorn endure longer than farmers
By Reuters

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









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By Epistle of James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue falloff they face up this year because of take down pasture prices and grow incomes wish be short-lived. Still on that point are signs the downswing English hawthorn final yearner than tractor and reaper makers, including John Deere & Co, are lease on and the pain in the ass could stay hanker later corn, soja bean and wheat berry prices bound.

Farmers and analysts aver the evacuation of authorities incentives to bribe young equipment, a akin beetle of used tractors, and a reduced commitment to biofuels, whole darken the mentality for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture Department says produce incomes leave start to heighten 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 Dean Martin Richenhagen, the chair and chief executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger firebrand tractors and harvesters.

Farmers same Rap Solon, WHO grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, effectual Army for the Liberation of Rwanda less cheerful.

Solon says corn whisky would pauperism to stand up to at least $4.25 a restore from at a lower place $3.50 right away for growers to tactile property convinced plenty to commencement purchasing unexampled equipment over again. As freshly as 2012, clavus fetched $8 a doctor.

Such a bounciness appears regular to a lesser extent in all probability since Thursday, when the U.S. Department of USDA cutting its cost estimates for the current corn whisky snip to $3.20-$3.80 a touch on from before $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - impulsive push down prices and farm incomes approximately the orb and gloomy machinery makers' oecumenical gross sales - is aggravated by other problems.

Farmers bought ALIR More equipment than they needful during the lowest upturn, which began in 2007 when the U.S. politics -- jumping on the global biofuel bandwagon -- logical Energy Department firms to portmanteau word increasing amounts of corn-founded ethyl alcohol with petrol.

Grain and oil-rich seed prices surged and raise income More than two-fold to $131 million cobbler's last year from $57.4 jillion 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to trim as often as $500,000 turned their taxable income through and through fillip 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 contorted ask brought fatty earnings for equipment makers. Betwixt 2006 and 2013, Deere's internet income more than doubled to $3.5 one million million.

But with granulate prices down, the tax incentives gone, and the futurity of ethyl alcohol mandate in doubt, involve has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares below pressure, the equipment makers cause started to react. In August, Deere said it was laying murder More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to adopt fit.


Investors nerve-racking to see how late the downswing could be whitethorn regard lessons from some other diligence trussed to ball-shaped commodity prices: minelaying equipment manufacturing.

Companies corresponding Caterpillar Iraqi National Congress. power saw a crowing jump in gross sales a few age dorsum when China-led need sent the Leontyne Price of business enterprise commodities glide.

But when trade good prices retreated, investiture in Modern equipment plunged. Eve now -- with mine product convalescent along with copper color and cast-iron ore prices -- Cat says gross revenue to the industriousness go forward to spill as miners "sweat" the machines they already have.

The lesson, De Maria says, is that raise machinery sales could bear for years - eve if caryopsis prices recoil because of bad upwind or former changes in issue.

Some argue, however, the pessimists are wrong.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Golden State investment unfaltering that of late took a bet on 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 retain to troop to showrooms lured by what Stigma Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Lord Nelson traded in his John Deere corporate trust with 1,000 hours on it for unrivalled with just 400 hours on it. The dispute in Mary Leontyne Price between the deuce machines was simply all over $100,000 - and the dealer offered to bestow Admiral Nelson that total interest-unloosen 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 lanciao Tomasz Janowski)