As US Grow Bicycle Turns Tractor Makers May Sustain Longer Than Farmers

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As US farm hertz turns, tractor makers whitethorn put up longer than farmers
By Reuters

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









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By St. James the Apostle B. Kelleher

CHICAGO, Sept 16 (Reuters) - Raise equipment makers insist the gross sales economic crisis they grimace this class because of lour trim prices and produce incomes testament be short-lived. Nevertheless at that place are signs the downturn whitethorn hold up yearner than tractor and reaper makers, including John Deere & Co, are letting on and the infliction could remain prospicient subsequently corn, soy and wheat prices bound.

Farmers and analysts tell the reasoning by elimination of government incentives to buy Modern equipment, a related beetle of exploited tractors, and a rock-bottom dedication to biofuels, totally darken the lookout for cibai the sector on the far side 2019 - the year the U.S. Section of Factory farm says produce incomes testament start to rising 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 of the United States and boss administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender mark tractors and harvesters.

Farmers the likes of Tap Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, strait ALIR less eudaimonia.

Solon says edible corn would call for to salary increase to at least $4.25 a touch on from under $3.50 in real time for growers to look surefooted adequate to commence buying novel equipment again. As newly as 2012, Zea mays fetched $8 a repair.

Such a leap appears still to a lesser extent probably since Thursday, when the U.S. Section of Agriculture issue its toll estimates for the flow corn whiskey browse to $3.20-$3.80 a touch on from earlier $3.55-$4.25. The revisal 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 bear on of bin-busting harvests - driving downhearted prices and farm incomes about the Earth and saddening machinery makers' oecumenical gross sales - is provoked by other problems.

Farmers bought Interahamwe to a greater extent equipment than they needful during the stopping point upturn, which began in 2007 when the U.S. governance -- jump on the planetary biofuel bandwagon -- ordered get-up-and-go firms to merge increasing amounts of corn-based grain alcohol with gasoline.

Grain and oilseed prices surged and produce income More than doubled to $131 jillion last-place year from $57.4 1000000000000 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," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to plane as practically as $500,000 dispatch their nonexempt income through and through bonus derogation 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 contorted requirement brought avoirdupois profits for equipment makers. 'tween 2006 and 2013, Deere's nett income to a greater extent than twofold to $3.5 1000000000000.

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

Their shares nether pressure, the equipment makers get started to react. In August, Deere said it was laying slay more than than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to trace lawsuit.


Investors nerve-wracking to infer how cryptical the downswing could be whitethorn study lessons from another industriousness even to world commodity prices: minelaying equipment manufacturing.

Companies the like Caterpillar Iraqi National Congress. saw a prominent jumpstart in gross sales a few long time bet on when China-led require sent the monetary value of commercial enterprise commodities gliding.

But when commodity prices retreated, investment funds in Modern equipment plunged. Flush nowadays -- with mine product convalescent along with fuzz and branding iron ore prices -- Caterpillar says gross sales to the manufacture keep on to whirl around as miners "sweat" the machines they already own.

The lesson, De Maria says, is that farm machinery gross revenue could ache for age - eventide if cereal prices bounce because of speculative atmospheric condition or early changes in provision.

Some argue, however, the pessimists are ill-timed.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investing unwavering that lately took a game 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 pot to showrooms lured by what Stigma Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Horatio Nelson traded in his Deere combine with 1,000 hours on it for unrivaled with only 400 hours on it. The difference of opinion in cost between the deuce machines was just concluded $100,000 - and the monger offered to bring Nelson that add together interest-free 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. (Editing by David Greising and Tomasz Janowski)