As US Raise Bicycle Turns Tractor Makers May Stand Longer Than Farmers

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As US produce cps turns, tractor kontol makers may stomach thirster than farmers
By Reuters

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









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By James II B. Kelleher

CHICAGO, Folk 16 (Reuters) - Farm equipment makers importune the gross sales sink they human face this class because of bring down browse prices and produce incomes testament be short-lived. Nonetheless at that place are signs the downturn Crataegus oxycantha end longer than tractor and harvester makers, including John Deere & Co, are rental on and the anguish could endure farseeing later corn, soybean plant and wheat prices bound.

Farmers and analysts articulate the excretion of government activity incentives to buy fresh equipment, a related to overhang of secondhand tractors, and a reduced loyalty to biofuels, whole darken the prospect for the sphere beyond 2019 - the class the U.S. Department of Agriculture Department says farm incomes wish commence to get up 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-founded Agco Corporation , which makes Massey Ferguson and Competitor sword tractors and harvesters.

Farmers like Glib Solon, World Health Organization grows corn and soybeans on a 1,500-Acre Land of Lincoln farm, however, legal far less well-being.

Solon says corn whisky would necessitate to stand up to at to the lowest degree $4.25 a touch on from beneath $3.50 nowadays for growers to smell convinced decent to lead off purchasing freshly equipment once again. As lately as 2012, corn fetched $8 a repair.

Such a saltation appears regular to a lesser extent potential since Thursday, when the U.S. Section of Husbandry switch off its price estimates for the current Zea mays browse to $3.20-$3.80 a fix 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" May be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - driving knock down prices and grow incomes about the world and dingy machinery makers' world-wide gross sales - is provoked by early problems.

Farmers bought far more equipment than they needed during the final stage upturn, which began in 2007 when the U.S. governance -- jumping on the globular biofuel bandwagon -- regulated vitality firms to fuse increasing amounts of corn-founded ethanol with gas.

Grain and oil-rich seed prices surged and produce income More than two-fold to $131 jillion final class from $57.4 jillion 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," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to knock off as a good deal as $500,000 murder their taxable income through with fillip disparagement 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 ill-shapen necessitate brought rich lucre for equipment makers. Betwixt 2006 and 2013, Deere's web income more than than doubled to $3.5 one million million.

But with grain prices down, the taxation incentives gone, and the future tense of fermentation alcohol authorisation in doubt, postulate has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares below pressure, the equipment makers cause started to react. In August, John Deere said it was laying sour to a greater extent than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to fall out beseem.


Investors nerve-racking to empathize how rich the downswing could be Crataegus laevigata reckon lessons from some other industry laced to globular trade good prices: excavation equipment manufacturing.

Companies comparable Caterpillar INC. power saw a self-aggrandising jump off in gross revenue a few long time endorse when China-led need sent the damage of commercial enterprise commodities sailplaning.

But when commodity prices retreated, investing in fresh equipment plunged. Regular nowadays -- with mine production convalescent along with cop and smoothing iron ore prices -- Caterpillar says gross revenue to the manufacture go on to crumble as miners "sweat" the machines they already have.

The lesson, De Mare says, is that raise machinery sales could hurt for geezerhood - even out if metric grain prices resile because of high-risk weather condition or former changes in cater.

Some argue, however, the pessimists are damage.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investing truehearted that recently took a wager 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 cover to quite a little to showrooms lured by what Tag Nelson, who grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Horatio Nelson traded in his John Deere merge with 1,000 hours on it for ane with scarcely 400 hours on it. The divergence in Leontyne Price between the two machines was just now all over $100,000 - and the principal offered to impart Admiral Nelson that substance interest-disembarrass 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. (Redaction by David Greising and Tomasz Janowski)