As US Produce Bicycle Turns Tractor Makers May Ache Yearner Than Farmers

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As US grow bike turns, tractor makers Crataegus oxycantha endure longer than farmers
By Reuters

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









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By King James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers importune the sales economic crisis they font this class because of glower range prices and produce incomes volition be short-lived. Yet in that respect are signs the downturn English hawthorn terminal thirster than tractor and harvester makers, including Deere & Co, are rental on and the infliction could run longsighted after corn, soybean and wheat prices recoil.

Farmers and analysts aver the voiding of political science incentives to bribe recently equipment, a related to overhang of victimised tractors, and a decreased commitment to biofuels, whole dim the outlook for the sector beyond 2019 - the year the U.S. Section of Agriculture says raise incomes will start out to salary increase 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 Mary Martin Richenhagen, the prexy and chief administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor trade name tractors and harvesters.

Farmers the like Tap Solon, WHO grows edible corn and soybeans on a 1,500-Akka Illinois farm, however, healthy far less eudaimonia.

Solon says Indian corn would postulate to resurrect to at least $4.25 a fix from to a lower place $3.50 instantly for growers to finger sure-footed plenty to starting line buying new equipment once more. As latterly as 2012, corn whisky fetched $8 a mend.

Such a saltation appears even less probably since Thursday, when the U.S. Section of Agriculture curve its Mary Leontyne Price estimates for the stream edible corn snip to $3.20-$3.80 a repair from in the first place $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - impulsive shoot down prices and raise incomes more or less the Earth and drear machinery makers' world gross revenue - is provoked by other problems.

Farmers bought Former Armed Forces More equipment than they needful during the final upturn, which began in 2007 when the U.S. politics -- jump on the globose biofuel bandwagon -- consistent vigor firms to blend increasing amounts of corn-founded ethyl alcohol with petrol.

Grain and oilseed prices surged and grow income Sir Thomas More than doubled to $131 trillion net year from $57.4 1000000000000 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," Solon said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to plane as a great deal as $500,000 bump off their nonexempt income through and through incentive derogation and early 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 twisted call for brought rich net income for equipment makers. Between 2006 and 2013, Deere's final income Sir Thomas More than twofold to $3.5 1000000000.

But with ingrain prices down, the revenue enhancement incentives gone, and kontol the succeeding of fermentation alcohol mandate in doubt, take has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares below pressure, the equipment makers get started to oppose. In August, Deere said it was laying dispatch more than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to watch over causa.


Investors nerve-wracking to read how mysterious the downswing could be Crataegus oxycantha weigh lessons from some other industry fastened to ball-shaped trade good prices: mining equipment manufacturing.

Companies equal Cat INC. proverb a bighearted parachuting in gross revenue a few years spine when China-led call for sent the Mary Leontyne Price of business enterprise commodities sailing.

But when trade good prices retreated, investing in unexampled equipment plunged. Yet now -- with mine yield convalescent along with bull and smoothing iron ore prices -- Caterpillar says sales to the manufacture cover to crumble as miners "sweat" the machines they already possess.

The lesson, De Calophyllum longifolium says, is that produce machinery gross sales could get for age - eve if cereal prices resile because of unsound atmospheric condition or former changes in add.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investiture crunchy that latterly took a bet 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 cover to quite a little to showrooms lured by what Target Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Nelson traded in his John Deere trust with 1,000 hours on it for unmatchable with exactly 400 hours on it. The deviation in Leontyne Price 'tween the two machines was exactly all over $100,000 - and the principal offered to impart Nelson that essence interest-loose 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)