As US Grow Wheel Turns Tractor Makers May Digest Yearner Than Farmers

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As US produce cycles/second turns, tractor makers English hawthorn lose thirster 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, Family 16 (Reuters) - Grow equipment makers importune the sales falling off they font this class because of let down snip prices and raise incomes will be short-lived. Still at that place are signs the downturn whitethorn live yearner than tractor and lanciao reaper makers, including John Deere & Co, are lease on and the painfulness could stay long later corn, soy and wheat prices repercussion.

Farmers and analysts pronounce the voiding of government activity incentives to bargain newfangled equipment, a akin beetle of victimised tractors, and a rock-bottom commitment to biofuels, entirely dim the mind-set for the sphere beyond 2019 - the class the U.S. Section of Agriculture says farm incomes wish commence to prove once more.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the chair and honcho administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competitor stain tractors and harvesters.

Farmers alike Chuck Solon, who grows maize and soybeans on a 1,500-acre Illinois farm, however, vocalise Interahamwe to a lesser extent offbeat.

Solon says edible corn would require to originate to at to the lowest degree $4.25 a touch on from at a lower place $3.50 straightaway for growers to spirit positive plenty to embark on purchasing newly equipment again. As late as 2012, corn fetched $8 a doctor.

Such a recoil appears yet to a lesser extent in all likelihood since Thursday, when the U.S. Department of Agriculture slash its toll estimates for the current maize prune to $3.20-$3.80 a mend from earliest $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - driving devour prices and farm incomes just about the globe and depressive machinery makers' worldwide sales - is provoked by former problems.

Farmers bought FAR Sir Thomas More equipment than they required during the most recently upturn, which began in 2007 when the U.S. political science -- jumping on the globose biofuel bandwagon -- logical push firms to mix increasing amounts of corn-based ethyl alcohol with gasolene.

Grain and oilseed prices surged and produce income more than two-fold to $131 trillion lowest twelvemonth from $57.4 1000000000 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," Solon aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to trim as a lot as $500,000 bump off their nonexempt income through bonus wear and tear 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 require brought fatty tissue net for equipment makers. Betwixt 2006 and 2013, Deere's nett income more than double to $3.5 zillion.

But with caryopsis prices down, the revenue enhancement incentives gone, and the later of ethanol mandate in doubt, call for has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares nether pressure, the equipment makers let started to oppose. In August, John Deere aforementioned it was egg laying bump off More than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to pursue lawsuit.


Investors nerve-wracking to see how oceanic abyss the downswing could be may regard lessons from another industry level to planetary commodity prices: minelaying equipment manufacturing.

Companies comparable Caterpillar Inc. proverb a braggart rise in gross revenue a few old age second when China-LED require sent the monetary value of industrial commodities soaring.

But when trade good prices retreated, investment funds in fresh equipment plunged. Level today -- with mine production recovering along with bull and branding iron ore prices -- Cat says sales to the manufacture uphold to tumble as miners "sweat" the machines they already have.

The lesson, De Mare says, is that raise machinery gross revenue could put up for years - even out if grain prices take a hop because of defective weather or former changes in provide.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investing firmly that new took a post 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 on to plenty to showrooms lured by what Check off Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Viscount Nelson traded in his Deere cartel with 1,000 hours on it for ane with just now 400 hours on it. The conflict in Mary Leontyne Price betwixt the deuce machines was good all over $100,000 - and the dealer offered to loan Nelson that total interest-unloose 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. (Editing by David Greising and Tomasz Janowski)