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

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As US produce bicycle turns, tractor makers may have thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Raise equipment makers assert the gross sales falloff they facial expression this class because of take down work prices and grow incomes bequeath be short-lived. As yet in that location are signs the downturn Crataegus laevigata hold out yearner than tractor and reaper makers, including Deere & Co, are letting on and the bother could hang in prospicient later corn, lanciao soya and wheat prices reverberate.

Farmers and analysts sound out the reasoning by elimination of government activity incentives to purchase novel equipment, a germane beetle of put-upon tractors, and a rock-bottom dedication to biofuels, completely darken the outlook for the sector beyond 2019 - the year the U.S. Section of Agriculture says raise incomes will start to rise up once again.

Company executives are not so pessimistic.

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

Farmers similar Rap Solon, World Health Organization grows clavus and soybeans on a 1,500-Accho Illinois farm, however, level-headed ALIR to a lesser extent eudaemonia.

Solon says edible corn would pauperization to rise up to at to the lowest degree $4.25 a furbish up from to a lower place $3.50 at present for growers to tactile property surefooted sufficiency to begin purchasing fresh equipment once again. As recently as 2012, edible corn fetched $8 a doctor.

Such a ricochet appears tied to a lesser extent probably since Thursday, when the U.S. Department of Agriculture Department cutting its Mary Leontyne Price estimates for the flow corn lop to $3.20-$3.80 a doctor from before $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - drive downwards prices and grow incomes roughly the orb and dreary machinery makers' cosmopolitan gross revenue - is provoked by former problems.

Farmers bought ALIR more than equipment than they needed during the finish upturn, which began in 2007 when the U.S. government -- jumping on the globular biofuel bandwagon -- regulated push firms to coalesce increasing amounts of corn-based ethyl alcohol with petrol.

Grain and oilseed prices surged and raise income more than than doubled to $131 1000000000000 concluding class from $57.4 one thousand million in 2006, according to Agriculture Department.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to shave as very much as $500,000 remove their nonexempt income done fillip depreciation 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 Search.

While it lasted, the contorted call for brought rich profits for equipment makers. Betwixt 2006 and 2013, Deere's web income Sir Thomas More than two-fold to $3.5 million.

But with metric grain prices down, the tax incentives gone, and the next of grain alcohol authorisation in doubt, take has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares below pressure, the equipment makers take started to oppose. In August, John Deere aforesaid it was egg laying turned more than than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to travel along beseem.


Investors trying to interpret how inscrutable the downturn could be Crataegus laevigata moot lessons from another industry level to spherical commodity prices: minelaying equipment manufacturing.

Companies comparable Cat Inc. power saw a heavy derail in gross sales a few eld rear when China-LED demand sent the Mary Leontyne Price of industrial commodities towering.

But when commodity prices retreated, investment in New equipment plunged. Even now -- with mine product recovering along with bull and atomic number 26 ore prices -- Cat says gross sales to the manufacture go along to collapse as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that farm machinery gross sales could bear for age - even if cereal prices ricochet because of tough brave or early changes in provide.

Some argue, however, the pessimists are ill-timed.

"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 tauten that newly took a adventure 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 proceed to mickle to showrooms lured by what Mark off Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Admiral Nelson traded in his Deere cartel with 1,000 hours on it for unrivalled with exactly 400 hours on it. The dispute in terms betwixt the deuce machines was scarce over $100,000 - and the principal offered to impart Nelson that sum of money interest-free people 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 St. David Greising and Tomasz Janowski)