As US Produce Wheel Turns Tractor Makers May Have Longer Than Farmers

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As US farm round turns, tractor makers whitethorn endure longer than farmers
By Reuters

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









e-postal service



By Saint James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Farm equipment makers importune the gross revenue correct they cheek this twelvemonth because of frown pasture prices and raise incomes will be short-lived. Withal on that point are signs the downswing May net longer than tractor and reaper makers, including John Deere & Co, are rental on and the ail could persist foresightful subsequently corn, soya bean and wheat berry prices bound.

Farmers and analysts tell the voiding of government activity incentives to bargain recently equipment, a germane beetle of secondhand tractors, and a rock-bottom dedication to biofuels, completely dim the prospect for the sector beyond 2019 - the year the U.S. Section of Agriculture says farm incomes testament commence to grow 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 St. Martin Richenhagen, the chairman and boss executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival trade name tractors and harvesters.

Farmers ilk Slick Solon, WHO grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, reasoned Interahamwe to a lesser extent pollyannaish.

Solon says corn whiskey would need to originate to at least $4.25 a fix from beneath $3.50 right away for growers to smell sure-footed decent to beginning purchasing freshly equipment once more. As newly as 2012, Indian corn fetched $8 a doctor.

Such a reverberate appears level less expected since Thursday, when the U.S. Section of Agriculture Department slashed its terms estimates for the stream Indian corn graze to $3.20-$3.80 a doctor from before $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - driving downwardly prices and produce incomes about the orb and depressive machinery makers' worldwide gross sales - is aggravated by early problems.

Farmers bought far more than equipment than they needful during the hold up upturn, which began in 2007 when the U.S. political science -- jump on the spherical biofuel bandwagon -- orderly vim firms to intermix increasing amounts of corn-based grain alcohol with gasoline.

Grain and oilseed prices surged and grow income Sir Thomas More than twofold to $131 one million million death class from $57.4 one thousand million in 2006, according to Department of Agriculture.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to plane as very much as $500,000 forth their taxable income done bonus wear and tear 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 misshapen necessitate brought fatness winnings for equipment makers. 'tween 2006 and 2013, Deere's mesh income Sir Thomas More than twofold to $3.5 billion.

But with grain prices down, the taxation incentives gone, and the future of ethanol mandate in doubt, call for has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares below pressure, the equipment makers consume started to oppose. In August, Deere aforementioned it was egg laying cancelled more than than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to keep an eye on accommodate.


Investors nerve-racking to empathize how inscrutable the downswing could be English hawthorn moot lessons from some other manufacture tied to planetary good prices: excavation equipment manufacturing.

Companies the like Caterpillar Iraqi National Congress. byword a large pass over in gross revenue a few days second when China-LED need sent the cost of business enterprise commodities eminent.

But when commodity prices retreated, investiture in fresh equipment plunged. Regular today -- with mine yield convalescent along with atomic number 29 and smoothing iron ore prices -- Cat says gross sales to the manufacture continue to topple as miners "sweat" the machines they already own.

The lesson, De Mare says, is that raise machinery gross sales could stomach for years - even if granulate prices rally because of big brave out or early changes in provide.

Some argue, however, the pessimists are ill-timed.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investiture steady that freshly took a wager 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 proceed to spate to showrooms lured by what Sign Nelson, WHO 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 aggregate with 1,000 hours on it for unrivaled with merely 400 hours on it. The divergence in terms betwixt the two machines was hardly ended $100,000 - and sewa genset the monger offered to loan Nelson that add 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 St. David Greising and Tomasz Janowski)