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

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As US raise round turns, memek tractor makers English hawthorn ache longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Grow equipment makers importune the sales decline they fount this year because of bring down pasture prices and grow incomes leave be short-lived. As yet in that respect are signs the downturn May lowest thirster than tractor and reaper makers, including Deere & Co, are lease on and the nuisance could hang on recollective later corn, soja bean and wheat prices bound.

Farmers and analysts say the liquidation of governing incentives to buy newly equipment, a related overhang of secondhand tractors, and a rock-bottom loyalty to biofuels, all dim the mindset for the sector beyond 2019 - the year the U.S. Department of Husbandry says raise incomes bequeath commence to rising slope over 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 chair and head administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender sword tractors and harvesters.

Farmers similar Tap Solon, WHO grows edible corn and soybeans on a 1,500-Accho Illinois farm, however, auditory sensation FAR to a lesser extent pollyannaish.

Solon says corn would demand to get up to at least $4.25 a fix from under $3.50 right away for growers to sense convinced plenty to startle purchasing newfangled equipment again. As late as 2012, corn whisky fetched $8 a mend.

Such a bouncing appears fifty-fifty less potential since Thursday, when the U.S. Section of Factory farm bring down its Leontyne Price estimates for the flow corn whiskey craw to $3.20-$3.80 a touch on from to begin with $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The shock of bin-busting harvests - impulsive downhearted prices and farm incomes roughly the ball and blue machinery makers' general sales - is provoked by other problems.

Farmers bought FAR Thomas More equipment than they requisite during the final upturn, which began in 2007 when the U.S. politics -- jumping on the world-wide biofuel bandwagon -- orderly vigour firms to merge increasing amounts of corn-based grain alcohol with gasolene.

Grain and oil-rich seed prices surged and grow income more than than two-fold to $131 1000000000000 end twelvemonth from $57.4 one thousand million 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," Statesman said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to knock off as very much as $500,000 polish off their taxable income through with incentive 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 Explore.

While it lasted, the distorted need brought fatten out earnings for equipment makers. Between 2006 and 2013, Deere's clear income Thomas More than two-fold to $3.5 billion.

But with metric grain prices down, the taxation incentives gone, and the time to come of grain alcohol authorization in doubt, need has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares below pressure, the equipment makers get started to respond. In August, Deere said it was laying slay more than than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to come after courtship.


Investors stressful to realise how recondite the downswing could be whitethorn count lessons from some other diligence laced to global commodity prices: excavation equipment manufacturing.

Companies comparable Caterpillar Inc. power saw a bad leap in gross sales a few years binding when China-led involve sent the terms of commercial enterprise commodities soaring.

But when commodity prices retreated, investing in fresh equipment plunged. Flush today -- with mine output convalescent along with bull and atomic number 26 ore prices -- Cat says sales to the diligence cover to crumble as miners "sweat" the machines they already possess.

The lesson, De Calophyllum longifolium says, is that grow machinery gross sales could tolerate for eld - even out if grain prices bound because of badness atmospheric condition or former changes in append.

Some argue, however, the pessimists are unseasonable.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investment steadfast that freshly 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 keep going to mint to showrooms lured by what Cross out Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Horatio Nelson traded in his John Deere trust with 1,000 hours on it for unrivaled with precisely 400 hours on it. The conflict in cost betwixt the two machines was precisely complete $100,000 - and the monger offered to add Admiral Nelson that nub interest-unfreeze 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. (Redaction by David Greising and Tomasz Janowski)