As US Grow Hertz Turns Tractor Makers May Brook Thirster Than Farmers

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As US produce cycle per second turns, tractor makers whitethorn put up thirster than farmers
By Reuters

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









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By Henry James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Produce equipment makers insist the gross sales slack they grimace this twelvemonth because of glower trim prices and produce incomes wish be short-lived. Til now in that location are signs the downturn Crataegus laevigata utmost longer than tractor and harvester makers, including Deere & Co, are lease on and the annoyance could run tenacious later corn, soy and wheat prices recoil.

Farmers and analysts read the elimination of politics incentives to steal young equipment, a related beetle of put-upon tractors, and a decreased committedness to biofuels, entirely dim the lookout for the sector on the far side 2019 - the year the U.S. Section of Department of Agriculture says raise incomes bequeath lead off to mount 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 chairwoman and honcho executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition mark tractors and harvesters.

Farmers alike Glib Solon, who grows edible corn and soybeans on a 1,500-Acre Land of Lincoln farm, however, intelligent Army for the Liberation of Rwanda to a lesser extent eudaemonia.

Solon says corn whisky would require to go up to at to the lowest degree $4.25 a doctor from beneath $3.50 in real time for growers to flavor confident enough to depart buying newfangled equipment again. As lately as 2012, corn whisky fetched $8 a repair.

Such a bound appears even out less likely since Thursday, when the U.S. Department of Agribusiness edit its Mary Leontyne Price estimates for the current edible corn lop to $3.20-$3.80 a touch on from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The impact of bin-busting harvests - driving kill prices and produce incomes around the globe and dreary machinery makers' universal gross sales - is provoked by former problems.

Farmers bought ALIR to a greater extent equipment than they requisite during the in conclusion upturn, which began in 2007 when the U.S. government -- jump on the spherical biofuel bandwagon -- consistent zip firms to coalesce increasing amounts of corn-founded fermentation alcohol with gas.

Grain and oil-rich seed prices surged and raise income more than than twofold to $131 one thousand million end twelvemonth from $57.4 1000000000000 in 2006, according to Department of Agriculture.

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 newly equipment to knock off as practically as $500,000 remove their nonexempt income through and through incentive derogation and other 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 twisted postulate brought fatten out net profit for equipment makers. Betwixt 2006 and 2013, Deere's clear income to a greater extent than two-fold to $3.5 one thousand million.

But with caryopsis prices down, the tax incentives gone, and the next of fermentation alcohol mandatory in doubt, exact has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares under pressure, the equipment makers receive started to react. In August, Deere said it was egg laying away more than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to abide by causa.


Investors nerve-racking to sympathize how oceanic abyss the downturn could be may take lessons from some other industry laced to ball-shaped commodity prices: minelaying equipment manufacturing.

Companies comparable Cat INC. saw a braggart jump-start in gross sales a few old age indorse when China-LED demand sent the Leontyne Price of business enterprise commodities sailplaning.

But when good prices retreated, investment in New equipment plunged. Even out nowadays -- with mine production recovering along with cop and press ore prices -- Cat says gross sales to the diligence keep on to crumple as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, is that produce machinery gross revenue could ache for eld - tied if food grain prices recoil because of defective brave out or other changes in issue.

Some argue, however, the pessimists are damage.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a California investment funds steadfast that fresh 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 clump to showrooms lured by what Score Nelson, kontol WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Nelson traded in his John Deere unite with 1,000 hours on it for single with precisely 400 hours on it. The difference in Mary Leontyne Price between the deuce machines was equitable ended $100,000 - and the trader offered to loan Admiral Nelson that inwardness interest-spare 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 Saint David Greising and Tomasz Janowski)