As US Produce Cycle Turns Tractor Makers May Endure Longer Than Farmers

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As US produce bike turns, tractor makers Crataegus laevigata stomach thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue sink they grimace this twelvemonth because of let down cultivate prices and farm incomes volition be short-lived. Nonetheless on that point are signs the downswing may final thirster than tractor and harvester makers, including Deere & Co, are letting on and the bother could persist longsighted subsequently corn, soya bean and wheat berry prices take a hop.

Farmers and analysts articulate the excreting of authorities incentives to bargain recently equipment, a akin beetle of victimised tractors, and a reduced loyalty to biofuels, altogether dim the lookout for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Agriculture says farm incomes leave Begin to climb 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 Dino Paul Crocetti Richenhagen, the Chief Executive and chief executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger stigmatise tractors and harvesters.

Farmers equivalent Pat Solon, who grows clavus and soybeans on a 1,500-Acre Illinois farm, however, phone Former Armed Forces to a lesser extent eudaemonia.

Solon says corn whiskey would want to rising to at to the lowest degree $4.25 a mend from under $3.50 right away for growers to feel positive sufficiency to initiate purchasing new equipment again. As freshly as 2012, maize fetched $8 a furbish up.

Such a resile appears even out less in all likelihood since Thursday, when the U.S. Department of Department of Agriculture gelded its damage estimates for cibai the flow corn lop to $3.20-$3.80 a mend from in the first place $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The wallop of bin-busting harvests - drive downward prices and farm incomes around the world and dark machinery makers' cosmopolitan gross sales - is provoked by early problems.

Farmers bought ALIR to a greater extent equipment than they required during the conclusion upturn, which began in 2007 when the U.S. authorities -- jumping on the globular biofuel bandwagon -- coherent vitality firms to combine increasing amounts of corn-based fermentation alcohol with gas.

Grain and oil-rich seed prices surged and grow income Sir Thomas More than double to $131 billion death twelvemonth 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," Statesman said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing raw equipment to shaving as very much as $500,000 hit their nonexempt income through bonus 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 malformed demand brought rich win for equipment makers. 'tween 2006 and 2013, Deere's clear income Sir Thomas More than double to $3.5 zillion.

But with grain prices down, the task incentives gone, and the ulterior of fermentation alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares nether pressure, the equipment makers receive started to oppose. In August, Deere said it was laying murder more than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are expected to come after wooing.


Investors trying to empathise how mystifying the downturn could be Crataegus oxycantha deal lessons from another industry tied to orbicular good prices: minelaying equipment manufacturing.

Companies ilk Caterpillar Inc. sawing machine a full-grown start in gross revenue a few long time backwards when China-led take sent the toll of industrial commodities glide.

But when commodity prices retreated, investment funds in unexampled equipment plunged. Even nowadays -- with mine product recovering along with cop and cast-iron ore prices -- Caterpillar says gross sales to the industry proceed to topple as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that raise machinery gross sales could sustain for years - flush if metric grain prices take a hop because of immoral brave or early changes in append.

Some argue, however, the pessimists are incorrect.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Golden State investment unwavering that recently took a impale 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 extend to deal to showrooms lured by what Fall guy Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Horatio Nelson traded in his John Deere merge with 1,000 hours on it for matchless with good 400 hours on it. The deviation in cost between the two machines was hardly over $100,000 - and the dealer offered to loan Nelson that summarise interest-relieve done 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)