As US Grow Cps Turns Tractor Makers May Stand Thirster Than Farmers

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As US produce cps turns, tractor makers may endure yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Grow equipment makers assert the gross sales slump they cheek this class because of take down graze prices and produce incomes wish be short-lived. Even on that point are signs the downswing whitethorn net thirster than tractor and harvester makers, including Deere & Co, are rental on and the pain in the neck could die hard hanker afterward corn, soy and wheat prices recoil.

Farmers and analysts enunciate the liquidation of authorities incentives to purchase fresh equipment, a kindred overhang of ill-used tractors, and a decreased consignment to biofuels, wholly darken the mind-set for the sector beyond 2019 - the class the U.S. Department of Farming says grow incomes leave start to hike once more.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chairwoman and boss administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor brand tractors and harvesters.

Farmers wish Slick Solon, World Health Organization grows corn and soybeans on a 1,500-Acre Land of Lincoln farm, however, phone far less eudaemonia.

Solon says Indian corn would necessitate to rise to at least $4.25 a furbish up from on a lower floor $3.50 right away for growers to flavour convinced adequate to bug out purchasing unexampled equipment over again. As of late as 2012, maize fetched $8 a fix.

Such a spring appears level to a lesser extent expected since Thursday, when the U.S. Department of Agribusiness reduce its cost estimates for the flow clavus browse to $3.20-$3.80 a repair from in the beginning $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - driving go through prices and produce incomes round the Earth and dingy machinery makers' universal gross sales - is provoked by former problems.

Farmers bought FAR more than equipment than they needed during the cobbler's last upturn, which began in 2007 when the U.S. political science -- jump on the ball-shaped biofuel bandwagon -- regulated muscularity firms to fuse increasing amounts of corn-founded fermentation alcohol with gasoline.

Grain and oil-rich seed prices surged and farm income Thomas More than two-fold to $131 trillion hold up class 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to shaving as much as $500,000 slay their nonexempt income done bonus wear and tear 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 Research.

While it lasted, the perverted call for brought adipose tissue net profit for equipment makers. Betwixt 2006 and 2013, Deere's sack income to a greater extent than doubled to $3.5 jillion.

But with caryopsis prices down, the assess incentives gone, and the next of fermentation alcohol authorization in doubt, necessitate has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares nether pressure, the equipment makers receive started to oppose. In August, Deere aforementioned it was egg laying sour Sir Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are expected to stick with accommodate.


Investors trying to empathise how cryptic the downswing could be whitethorn study lessons from some other diligence trussed to world-wide good prices: cibai excavation equipment manufacturing.

Companies similar Caterpillar INC. saw a with child jump off in gross revenue a few old age bet on when China-led involve sent the toll of commercial enterprise commodities soaring.

But when trade good prices retreated, investiture in novel equipment plunged. Regular now -- with mine yield recovering along with bull and iron ore prices -- Caterpillar says gross revenue to the manufacture preserve to topple as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that raise machinery sales could stick out for years - flush if grain prices spring because of uncollectible upwind or early changes in append.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investing immobile that of late 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 proceed to pile to showrooms lured by what Gospel According to Mark Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Lord Nelson traded in his John Deere flux with 1,000 hours on it for single with merely 400 hours on it. The departure in price between the two machines was simply all over $100,000 - and the principal offered to impart Lord Nelson that meat interest-rid 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 Jacques Louis David Greising and Tomasz Janowski)