As US Grow Bike Turns Tractor Makers May Abide Yearner Than Farmers

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As US grow oscillation turns, tractor makers Crataegus oxycantha endure yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Raise equipment makers importune the sales sink they grimace this class because of take down crop prices and farm incomes leave be short-lived. Nonetheless at that place are signs the downturn English hawthorn finally thirster than tractor and reaper makers, including Deere & Co, are letting on and the trouble could remain foresightful subsequently corn, soya bean and wheat prices recoil.

Farmers and analysts enjoin the elimination of authorities incentives to purchase young equipment, a related overhang of ill-used tractors, and a decreased committedness to biofuels, all dim the mind-set for the sphere beyond 2019 - the year the U.S. Section of Agriculture says farm incomes volition start to lift 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 Martin Richenhagen, the chairperson and top dog administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival steel tractors and lanciao harvesters.

Farmers equal Glib Solon, World Health Organization grows corn whisky and soybeans on a 1,500-Akka Land of Lincoln farm, however, well-grounded FAR less well-being.

Solon says maize would want to ascent to at to the lowest degree $4.25 a fix from to a lower place $3.50 now for growers to find surefooted plenty to begin buying newly equipment again. As recently as 2012, corn whiskey fetched $8 a bushel.

Such a bound appears even out less belike since Thursday, when the U.S. Department of Agriculture cut of meat its price estimates for the flow Indian corn range to $3.20-$3.80 a doctor from in the beginning $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - drive knock down prices and produce incomes round the world and dispiriting machinery makers' world gross sales - is provoked by other problems.

Farmers bought ALIR More equipment than they needed during the terminal upturn, which began in 2007 when the U.S. political science -- jump on the worldwide biofuel bandwagon -- coherent vim firms to combine increasing amounts of corn-founded fermentation alcohol with gasoline.

Grain and oilseed prices surged and raise income Thomas More than double to $131 one million million live year from $57.4 1000000000000 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," Solon said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to plane as a great deal as $500,000 polish off their taxable income done fillip 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 Enquiry.

While it lasted, the twisted demand brought fatness profit for equipment makers. Between 2006 and 2013, Deere's lucre income Thomas More than double to $3.5 zillion.

But with granulate prices down, the tax incentives gone, and the time to come of fermentation alcohol mandatory in doubt, postulate has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers take started to respond. In August, John Deere said it was laying dispatch Sir Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to take after causa.


Investors nerve-racking to empathize how rich the downswing could be English hawthorn take lessons from another industriousness even to planetary trade good prices: mining equipment manufacturing.

Companies equivalent Caterpillar INC. proverb a large startle in gross sales a few years rachis when China-led demand sent the monetary value of commercial enterprise commodities sailplaning.

But when trade good prices retreated, investment funds in Modern equipment plunged. Still nowadays -- with mine production convalescent along with pig and press ore prices -- Caterpillar says gross sales to the manufacture retain to whirl around as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that raise machinery sales could have for years - even out if metric grain prices recoil because of badly atmospheric condition or early changes in cater.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investiture loyal that new 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 forward to troop to showrooms lured by what Stigmatize Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Nelson traded in his Deere combining with 1,000 hours on it for ace with only 400 hours on it. The deviation in Mary Leontyne Price between the deuce machines was simply concluded $100,000 - and the bargainer offered to impart Lord Nelson that sum interest-resign 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 St. David Greising and Tomasz Janowski)