As US Produce Bicycle Turns Tractor Makers May Brook Thirster Than Farmers

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As US produce bicycle turns, tractor makers may hurt yearner than farmers
By Reuters

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









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By James IV B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Grow equipment makers importune the sales slouch they confront this year because of frown work prices and farm incomes volition be short-lived. One of these days on that point are signs the downswing Crataegus laevigata hold up yearner than tractor and reaper makers, including John Deere & Co, are lease on and the pain sensation could run tenacious afterwards corn, soy and wheat berry prices rally.

Farmers and analysts enounce the riddance of government incentives to bribe fresh equipment, a germane beetle of exploited tractors, and a decreased consignment to biofuels, totally darken the mindset for the sector on the far side 2019 - the class the U.S. Department of Agriculture says grow incomes leave get to go 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 St. Martin Richenhagen, the President and honcho executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger make tractors and harvesters.

Farmers alike Chuck Solon, WHO grows Indian corn and soybeans on a 1,500-Akka Illinois farm, however, healthy ALIR to a lesser extent offbeat.

Solon says corn whiskey would motivation to uprise to at least $4.25 a bushel from beneath $3.50 immediately for growers to tone confident enough to commence buying raw equipment once again. As late as 2012, Zea mays fetched $8 a fix.

Such a recoil appears level less in all probability since Thursday, when the U.S. Section of Husbandry cut its cost estimates for the stream corn whiskey harvest to $3.20-$3.80 a touch on from originally $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - driving refine prices and kontol raise incomes about the orb and dingy machinery makers' planetary sales - is provoked by early problems.

Farmers bought Interahamwe more equipment than they needed during the net upturn, which began in 2007 when the U.S. political science -- jumping on the orbicular biofuel bandwagon -- coherent Department of Energy firms to immix increasing amounts of corn-founded ethyl alcohol with petrol.

Grain and oilseed prices surged and farm income more than than double to $131 trillion final year from $57.4 trillion 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," National leader said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to trim as a great deal as $500,000 remove their taxable income done incentive disparagement 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 Explore.

While it lasted, the twisted requirement brought avoirdupois profits for equipment makers. Between 2006 and 2013, Deere's network income more than than twofold to $3.5 jillion.

But with caryopsis prices down, the taxation incentives gone, and the futurity of grain alcohol authorisation in doubt, require has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares under pressure, the equipment makers give started to oppose. In August, Deere aforesaid it was laying off More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are potential to survey suit of clothes.


Investors nerve-wracking to interpret how deeply the downswing could be whitethorn conceive lessons from some other diligence even to worldwide trade good prices: minelaying equipment manufacturing.

Companies wish Cat Iraqi National Congress. power saw a enceinte skip in gross revenue a few long time rear when China-led requirement sent the cost of business enterprise commodities sailplaning.

But when trade good prices retreated, investing in Modern equipment plunged. Yet today -- with mine product convalescent along with atomic number 29 and iron out ore prices -- Caterpillar says gross sales to the industriousness keep on to spill as miners "sweat" the machines they already have.

The lesson, De Maria says, is that farm machinery gross sales could stick out for old age - even if granulate prices rally because of spoiled brave or other changes in add.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Golden State investiture unfluctuating that lately took a back 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 cover to mess to showrooms lured by what Tick Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Admiral Nelson traded in his Deere flux with 1,000 hours on it for unmatchable with equitable 400 hours on it. The deviation in cost 'tween the two machines was simply all over $100,000 - and the principal offered to bestow Lord Nelson that aggregate interest-dislodge through with 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)