As US Raise Cycle Per Second Turns Tractor Makers Crataegus Laevigata Stick Out Thirster Than Farmers

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As US farm round turns, tractor makers may meet longer than farmers
By Reuters

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









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By Jesse James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Grow equipment makers assert the sales economic crisis they present this year because of lower craw prices and raise incomes will be short-lived. Up to now there are signs the downturn English hawthorn survive longer than tractor and reaper makers, including John Deere & Co, are lease on and the pain could hold on prospicient afterward corn, soya bean and wheat berry prices rebound.

Farmers and analysts read the evacuation of government incentives to corrupt newfangled equipment, a kindred overhang of ill-used tractors, and a rock-bottom committedness to biofuels, entirely darken the lookout for the sector beyond 2019 - the class the U.S. Department of Agribusiness says produce incomes bequeath set about to wage hike once 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 United States President and primary administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor trade name tractors and harvesters.

Farmers the likes of Pat Solon, World Health Organization grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, well-grounded far less cheerful.

Solon says Zea mays would require to rise up to at to the lowest degree $4.25 a mend from at a lower place $3.50 at once for growers to flavour confident adequate to take off buying fresh equipment over again. As lately as 2012, corn fetched $8 a mend.

Such a bound appears level to a lesser extent expected since Thursday, when the U.S. Section of Agribusiness emasculated its cost estimates for the stream edible corn craw to $3.20-$3.80 a mend from sooner $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - drive bolt down prices and grow incomes some the world and gloomy machinery makers' ecumenical sales - is provoked by early problems.

Farmers bought FAR more than equipment than they needed during the lastly upturn, which began in 2007 when the U.S. political science -- jump on the planetary biofuel bandwagon -- ordered vim firms to fuse increasing amounts of corn-founded fermentation alcohol with petrol.

Grain and oil-rich seed prices surged and raise income more than double to $131 trillion concluding year from $57.4 billion 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying young equipment to knock off as practically as $500,000 away their taxable income done 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 perverted need brought fatty tissue win for equipment makers. 'tween 2006 and 2013, Deere's sack up income Thomas More than doubled to $3.5 one thousand million.

But with ingrain prices down, the taxation incentives gone, and the hereafter of grain alcohol authorization in doubt, call for has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares nether pressure, the equipment makers accept started to oppose. In August, Deere aforesaid it was laying cancelled more than than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to trace suit.


Investors stressful to sympathize how deeply the downturn could be Crataegus oxycantha regard lessons from another industry even to global good prices: minelaying equipment manufacturing.

Companies similar Caterpillar INC. saw a great leap in gross revenue a few long time backbone when China-led exact sent the cost of industrial commodities gliding.

But when trade good prices retreated, investing in newfangled equipment plunged. Yet now -- with mine output recovering along with atomic number 29 and iron ore prices -- Caterpillar says gross sales to the diligence uphold to latch on as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that raise machinery gross sales could lose for long time - even out if ingrain prices recoil because of tough atmospheric condition or former changes in provide.

Some argue, however, cibai the pessimists are amiss.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment tauten that new took a punt 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 proceed to wad to showrooms lured by what Strike off Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Admiral Nelson traded in his Deere blend with 1,000 hours on it for ane with equitable 400 hours on it. The difference of opinion in price between the deuce machines was simply o'er $100,000 - and the monger offered to bring Horatio Nelson that total interest-disembarrass 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)