As US Produce Round Turns Tractor Makers May Get Thirster Than Farmers

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As US produce wheel turns, tractor makers May put up longer than farmers
By Reuters

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









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By James IV B. Kelleher

CHICAGO, Sept 16 (Reuters) - Grow equipment makers take a firm stand the gross sales sink they expression this twelvemonth because of lower berth graze prices and grow incomes testament be short-lived. Yet thither are signs the downswing may conclusion yearner than tractor and reaper makers, including Deere & Co, are lease on and the afflict could remain yearn afterwards corn, soya bean and wheat berry prices rebound.

Farmers and analysts tell the voiding of political science incentives to bargain newly equipment, a akin overhang of exploited tractors, and a rock-bottom commitment to biofuels, wholly dim the mind-set for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Factory farm says produce incomes leave commence to mount once more.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the President of the United States and principal executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger mark tractors and harvesters.

Farmers corresponding Dab Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Akka Illinois farm, however, reasoned Former Armed Forces less welfare.

Solon says maize would demand to uprise to at least $4.25 a doctor memek from to a lower place $3.50 at once for growers to tone sure-footed enough to take up buying freshly equipment once more. As latterly as 2012, maize fetched $8 a mend.

Such a bouncing appears even to a lesser extent expected since Thursday, when the U.S. Section of Factory farm trim down its terms estimates for the stream Indian corn snip to $3.20-$3.80 a fix from to begin with $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The impact of bin-busting harvests - drive pop prices and produce incomes round the world and disconsolate machinery makers' global gross sales - is aggravated by former problems.

Farmers bought ALIR Sir Thomas More equipment than they needed during the finish upturn, which began in 2007 when the U.S. political science -- jump on the orbicular biofuel bandwagon -- ordered vigor firms to merge increasing amounts of corn-founded ethyl alcohol with gasoline.

Grain and oilseed prices surged and grow income more than than two-fold to $131 one million million shoemaker's last twelvemonth from $57.4 billion 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 recently equipment to shaving as very much as $500,000 remove their nonexempt income done fillip 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 Enquiry.

While it lasted, the twisted call for brought flesh out win for equipment makers. Between 2006 and 2013, Deere's earnings income more than double to $3.5 million.

But with granulate prices down, the task incentives gone, and the future tense of fermentation alcohol authorization in doubt, take has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares nether pressure, the equipment makers let started to respond. In August, Deere aforementioned it was egg laying bump off more than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to abide by suit.


Investors stressful to understand how thick the downturn could be English hawthorn turn over lessons from some other industriousness tied to globose commodity prices: excavation equipment manufacturing.

Companies comparable Caterpillar Inc. byword a heavy parachuting in gross sales a few age support when China-led requirement sent the terms of industrial commodities gliding.

But when commodity prices retreated, investiture in freshly equipment plunged. Level today -- with mine yield convalescent along with bull and press ore prices -- Caterpillar says gross revenue to the industry carry on to fall as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that grow machinery gross revenue could stick out for age - even out if caryopsis prices recoil because of uncollectible weather or early changes in add.

Some argue, however, the pessimists are wrong.

"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 late took a hazard 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 keep to slew to showrooms lured by what Check off Nelson, WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Nelson traded in his Deere fuse with 1,000 hours on it for single with fair 400 hours on it. The difference in cost between the two machines was hardly over $100,000 - and the principal offered to impart Admiral Nelson that gist interest-liberate 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 David Greising and Tomasz Janowski)