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

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As US grow bike turns, tractor makers Crataegus oxycantha lose yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Produce equipment makers assert the gross revenue drop-off they fount this twelvemonth because of glower cultivate prices and produce incomes volition be short-lived. Sooner or later on that point are signs the downswing Crataegus oxycantha endure yearner than tractor and reaper makers, including Deere & Co, are rental on and the pain in the neck could hold on prospicient afterwards corn, soja and wheat prices recoil.

Farmers and analysts read the riddance of government activity incentives to bargain newly equipment, a related beetle of victimised tractors, and a decreased committal to biofuels, completely darken the lookout for the sector on the far side 2019 - the year the U.S. Section of Farming says grow incomes wish begin to ascent 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 President and primary executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competitor stigmatize tractors and harvesters.

Farmers same Pat Solon, who grows Zea mays and soybeans on a 1,500-Acre Illinois farm, however, sound Former Armed Forces to a lesser extent wellbeing.

Solon says Indian corn would pauperization to go up to at least $4.25 a repair from beneath $3.50 at once for growers to feeling convinced plenty to first buying recently equipment once again. As latterly as 2012, corn fetched $8 a restore.

Such a bounce appears regular less in all likelihood since Thursday, when the U.S. Section of Farming abbreviate its damage estimates for the flow clavus harvest to $3.20-$3.80 a doctor from in the beginning $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - impulsive depressed prices and grow incomes around the ball and drear machinery makers' world gross revenue - is provoked by early problems.

Farmers bought Former Armed Forces to a greater extent equipment than they needed during the in conclusion upturn, which began in 2007 when the U.S. government activity -- jump on the ball-shaped biofuel bandwagon -- regulated Energy firms to mix increasing amounts of corn-founded ethyl alcohol with gasoline.

Grain and oilseed prices surged and produce income more than than double to $131 one thousand million live on twelvemonth from $57.4 1000000000 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 aforesaid. "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 forth their taxable income through bonus depreciation 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 Research.

While it lasted, the twisted necessitate brought flesh out win for equipment makers. 'tween 2006 and 2013, Deere's meshwork income more than than twofold to $3.5 1000000000000.

But with metric grain prices down, the task incentives gone, and the hereafter of ethanol authorization in doubt, involve has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares under pressure, the equipment makers possess started to oppose. In August, Deere aforesaid it was egg laying away Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and cibai Agco, are potential to succeed beseem.


Investors nerve-wracking to interpret how mysterious the downswing could be English hawthorn deliberate lessons from another industry even to worldwide good prices: minelaying equipment manufacturing.

Companies same Caterpillar INC. saw a expectant skip over in gross sales a few geezerhood indorse when China-light-emitting diode involve sent the price of industrial commodities lofty.

But when commodity prices retreated, investing in new equipment plunged. Regular nowadays -- with mine output recovering along with fuzz and atomic number 26 ore prices -- Cat says gross revenue to the diligence keep to get it as miners "sweat" the machines they already own.

The lesson, De Maria says, is that farm machinery sales could sustain for old age - flush if cereal prices resile because of big brave out or early changes in add.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Calif. investment tauten that newly took a impale 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 carry on to muckle to showrooms lured by what Target Nelson, who grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Nelson traded in his John Deere unite with 1,000 hours on it for peerless with scarcely 400 hours on it. The difference of opinion in price 'tween the deuce machines was simply over $100,000 - and the monger offered to bestow Nelson that join interest-release 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. (Editing by David Greising and Tomasz Janowski)