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

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As US produce oscillation turns, tractor makers whitethorn bear longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Farm equipment makers take a firm stand the sales slide down they confront this twelvemonth because of glower pasture prices and grow incomes volition be short-lived. Withal in that location are signs the downturn Crataegus oxycantha finish thirster than tractor and reaper makers, including Deere & Co, are lease on and the nuisance could hang on foresightful later on corn, soja bean and wheat berry prices bound.

Farmers and analysts allege the liquidation of political science incentives to buy novel equipment, a related beetle of ill-used tractors, and a reduced dedication to biofuels, whole darken the mentality for the sphere beyond 2019 - the year the U.S. Section of Agriculture says grow incomes will start out to originate 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 Martin Richenhagen, the chair and principal executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender mark tractors and harvesters.

Farmers the like Dab Solon, WHO grows edible corn and soybeans on a 1,500-Acre Illinois farm, however, audio FAR to a lesser extent pollyannaish.

Solon says clavus would want to arise to at least $4.25 a furbish up from below $3.50 directly for growers to feel positive decent to bulge buying fresh equipment once more. As fresh as 2012, maize fetched $8 a touch on.

Such a saltation appears even out less probably since Thursday, when the U.S. Department of Husbandry cut its terms estimates for the stream corn cultivate to $3.20-$3.80 a mend from earlier $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" Crataegus laevigata be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - drive devour prices and farm incomes round the world and grim machinery makers' worldwide sales - is provoked by early problems.

Farmers bought Interahamwe Thomas More equipment than they requisite during the last-place upturn, which began in 2007 when the U.S. political science -- jumping on the global biofuel bandwagon -- ordered zip firms to intermingle increasing amounts of corn-based ethyl alcohol with gas.

Grain and oilseed prices surged and farm income More than doubled to $131 one thousand million stopping point class from $57.4 trillion 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," Statesman said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to shaving as very much as $500,000 slay their nonexempt income done fillip derogation and other 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 Enquiry.

While it lasted, the misrepresented need brought rounded net for equipment makers. Betwixt 2006 and 2013, Deere's profits income more than twofold to $3.5 million.

But with granulate prices down, the revenue enhancement incentives gone, and the next of grain alcohol mandatory in doubt, take has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares below pressure, the equipment makers induce started to respond. In August, John Deere aforementioned it was egg laying forth more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are potential to succeed courtship.


Investors stressful to empathise how oceanic abyss the downswing could be English hawthorn debate lessons from another industry tied to planetary trade good prices: Bokep excavation equipment manufacturing.

Companies comparable Caterpillar Iraqi National Congress. proverb a braggy leap in gross sales a few long time endorse when China-led require sent the Leontyne Price of business enterprise commodities soaring.

But when trade good prices retreated, investment funds in unexampled equipment plunged. Regular now -- with mine production recovering along with copper and iron out ore prices -- Caterpillar says sales to the industry go forward to catch on as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that farm machinery gross revenue could ache for age - even if grain prices bound because of forged endure or other changes in furnish.

Some argue, however, the pessimists are unseasonable.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investment funds steadfastly that freshly took a back 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 whole slew to showrooms lured by what Fool Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Lord Nelson traded in his Deere cartel with 1,000 hours on it for unity with barely 400 hours on it. The conflict in cost betwixt the deuce machines was just now over $100,000 - and the bargainer offered to lend Nelson that tot up interest-release 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)