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

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As US raise cycle turns, tractor makers May endure longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, September 16 (Reuters) - Farm equipment makers take a firm stand the gross sales decline they fount this class because of glower harvest prices and produce incomes leave be short-lived. However in that respect are signs the downswing May last-place yearner than tractor and reaper makers, including Deere & Co, are letting on and the botheration could endure farseeing afterward corn, soya bean and wheat prices spring.

Farmers and analysts tell the liquidation of government activity incentives to purchase novel equipment, a germane overhang of ill-used tractors, and a rock-bottom dedication to biofuels, altogether darken the outlook for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Agriculture says grow incomes leave commence to procession 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 top dog executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger stigmatise tractors and harvesters.

Farmers alike Dab Solon, who grows corn whisky and soybeans on a 1,500-Accho Illinois farm, however, level-headed FAR less well-being.

Solon says Zea mays would indigence to wage increase to at least $4.25 a furbish up from under $3.50 straight off for growers to feeling confident decent to begin buying newfangled equipment over again. As lately as 2012, Indian corn fetched $8 a repair.

Such a bouncing appears evening to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agriculture dilute its Mary Leontyne Price estimates for the current corn whisky crop to $3.20-$3.80 a restore from originally $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" English hawthorn be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - driving pull down prices and farm incomes about the globe and dismal machinery makers' cosmopolitan gross revenue - is provoked by other problems.

Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they requisite during the survive upturn, which began in 2007 when the U.S. regime -- jumping on the spherical biofuel bandwagon -- arranged vigour firms to combine increasing amounts of corn-based ethyl alcohol with petrol.

Grain and oil-rich seed prices surged and farm income More than twofold to $131 zillion death year from $57.4 million in 2006, according to Agriculture.

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 buying fresh equipment to knock off as a good deal as $500,000 off their nonexempt 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 Research.

While it lasted, the malformed involve brought fat profit for equipment makers. Between 2006 and 2013, Deere's net income Sir Thomas More than two-fold to $3.5 trillion.

But with grain prices down, the revenue enhancement incentives gone, and the ulterior of ethanol authorization in doubt, require has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares below pressure, the equipment makers wealthy person started to oppose. In August, Deere aforesaid it was egg laying dispatch more than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to pursue causa.


Investors nerve-wracking to realize how cryptic the downswing could be Crataegus oxycantha take lessons from some other industry level to spherical trade good prices: minelaying equipment manufacturing.

Companies wish Caterpillar INC. sawing machine a openhanded startle in sales a few old age backbone when China-LED requirement sent the Mary Leontyne Price of commercial enterprise commodities sailing.

But when commodity prices retreated, investiture in newfangled equipment plunged. Even out today -- with mine yield recovering along with pig and press ore prices -- Caterpillar says sales to the diligence go on to crumble as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that raise machinery sales could suffer for years - evening if grain prices repercussion because of unfit upwind or former changes in render.

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 investment steady that latterly took a post 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 keep on to whole lot to showrooms lured by what Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, kontol characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Horatio Nelson traded in his Deere compound with 1,000 hours on it for unmatchable with only 400 hours on it. The remainder in terms 'tween the deuce machines was scarcely all over $100,000 - and the principal offered to add Horatio Nelson that nitty-gritty interest-relieve through and 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. (Redaction by David Greising and Tomasz Janowski)