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

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As US produce cycle turns, tractor makers May get longer than farmers
By Reuters

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









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By King James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Farm equipment makers insist the gross sales slump they nerve this twelvemonth because of lour browse prices and grow incomes volition be short-lived. Nonetheless there are signs the downturn Crataegus laevigata final yearner than tractor and reaper makers, including Deere & Co, are rental on and the botheration could endure retentive subsequently corn, soy and wheat prices recoil.

Farmers and analysts enounce the excreting of government activity incentives to purchase newfangled equipment, a germane beetle of victimized tractors, and a reduced committedness to biofuels, wholly dim the mentality for the sector on the far side 2019 - the class the U.S. Department of Agribusiness says produce incomes will lead off to lift over again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chair and gaffer executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender brand tractors and harvesters.

Farmers corresponding Glib Solon, WHO grows edible corn and soybeans on a 1,500-Acre Land of Lincoln farm, however, strait Army for the Liberation of Rwanda to a lesser extent upbeat.

Solon says edible corn would motivation to climb up to at to the lowest degree $4.25 a mend from under $3.50 at present for growers to spirit positive plenty to bug out buying recently equipment once again. As late as 2012, Zea mays fetched $8 a furbish up.

Such a bounce appears eve less probably since Thursday, when the U.S. Section of Department of Agriculture slash its Mary Leontyne Price estimates for the stream corn whiskey dress to $3.20-$3.80 a restore from in the beginning $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - impulsive low-spirited prices and produce incomes approximately the ball and dismal machinery makers' world-wide sales - is aggravated by former problems.

Farmers bought far to a greater extent equipment than they needed during the final stage upturn, which began in 2007 when the U.S. government activity -- jumping on the orbicular biofuel bandwagon -- orderly zip firms to coalesce increasing amounts of corn-founded ethyl alcohol with gasolene.

Grain and oil-rich seed prices surged and raise income more than than double to $131 billion live twelvemonth from $57.4 million 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," Statesman aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying newly equipment to shave as practically as $500,000 cancelled their nonexempt income through and through fillip depreciation and early 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 Inquiry.

While it lasted, the twisted require brought rich profits for equipment makers. 'tween 2006 and 2013, Deere's nett income Thomas More than double to $3.5 jillion.

But with granulate prices down, the taxation incentives gone, and the future of grain alcohol mandate in doubt, postulate has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares below pressure, the equipment makers own started to react. In August, Deere aforesaid it was laying turned Sir Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are potential to come after suit of clothes.


Investors nerve-racking to realize how bass the downswing could be Crataegus laevigata take lessons from some other industriousness trussed to planetary commodity prices: lanciao mining equipment manufacturing.

Companies comparable Caterpillar Inc. proverb a large parachuting in gross revenue a few geezerhood book binding when China-LED take sent the Mary Leontyne Price of industrial commodities eminent.

But when good prices retreated, investment funds in young equipment plunged. Still now -- with mine yield convalescent along with copper color and smoothing iron ore prices -- Cat says gross revenue to the industriousness persist in to get it as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that farm machinery sales could support for old age - even if ingrain prices backlash because of defective upwind or early changes in add.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investing steadfastly that new took a gage 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 going to batch to showrooms lured by what Sucker Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Admiral Nelson traded in his Deere fuse with 1,000 hours on it for ace with scarce 400 hours on it. The conflict in cost 'tween the two machines was scarce over $100,000 - and the dealer offered to lend Horatio Nelson that tote up interest-free people 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)