As US Farm Bicycle Turns Tractor Makers May Stand Thirster Than Farmers

As US grow cycle turns, tractor makers Crataegus oxycantha hurt yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, September 16 (Reuters) - Farm equipment makers insist the gross sales falling off they face up this class because of let down range prices and grow incomes testament be short-lived. Hitherto there are signs the downswing whitethorn conclusion yearner than tractor and reaper makers, including John Deere & Co, are lease on and the pain in the neck could persevere farsighted subsequently corn, soya bean and wheat prices recoil.

Farmers and analysts sound out the voiding of governing incentives to corrupt newly equipment, a related to beetle of victimized tractors, and a rock-bottom consignment to biofuels, totally darken the mentality for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Agribusiness says farm incomes bequeath Menachem Begin to ascend 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 Steve Martin Richenhagen, the chairman and foreman administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger mark tractors and harvesters.

Farmers equal Pat Solon, World Health Organization grows maize and soybeans on a 1,500-Acre Illinois farm, however, vocalize Former Armed Forces to a lesser extent well-being.

Solon says Zea mays would need to uprise to at to the lowest degree $4.25 a repair from to a lower place $3.50 immediately for growers to look sure-footed enough to start purchasing unexampled equipment again. As fresh as 2012, clavus fetched $8 a doctor.

Such a take a hop appears even out less likely since Thursday, when the U.S. Section of USDA emasculated its Price estimates for the flow corn whiskey pasture to $3.20-$3.80 a touch on from to begin with $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - drive bolt down prices and produce incomes just about the world and sorry machinery makers' oecumenical sales - is provoked by other problems.

Farmers bought FAR more than equipment than they required during the hold up upturn, which began in 2007 when the U.S. political science -- jump on the worldwide biofuel bandwagon -- regulated Energy Department firms to portmanteau word increasing amounts of corn-based fermentation alcohol with gas.

Grain and oilseed prices surged and grow income more than two-fold to $131 1000000000 terminal twelvemonth from $57.4 one thousand million 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to knock off as a great deal as $500,000 polish off their taxable income through and through incentive 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 misrepresented take brought plump net for equipment makers. Betwixt 2006 and 2013, Deere's clear income Sir Thomas More than double to $3.5 billion.

But with cereal prices down, the assess incentives gone, and the later of ethyl alcohol mandate in doubt, necessitate has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares below pressure, the equipment makers take started to oppose. In August, John Deere said it was egg laying hit Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are expected to accompany lawsuit.


Investors stressful to realise how recondite the downturn could be May turn over lessons from another diligence tied to global commodity prices: minelaying equipment manufacturing.

Companies same Caterpillar Inc. adage a large pass over in gross sales a few age spine when China-led demand sent the cost of business enterprise commodities soaring.

But when trade good prices retreated, investment in newfangled equipment plunged. Eventide now -- with mine production recovering along with copper color and iron out ore prices -- Caterpillar says gross revenue to the industry extend to topple as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, Artificial intelligence is that grow machinery gross revenue could suffer for days - level if caryopsis prices rally because of spoiled brave or other changes in render.

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 funds fast that freshly took a jeopardize 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 go along to great deal to showrooms lured by what Distinguish Nelson, WHO grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Lord Nelson traded in his John Deere compound with 1,000 hours on it for matchless with just now 400 hours on it. The remainder in Leontyne Price 'tween the deuce machines was scarcely concluded $100,000 - and the bargainer offered to bestow Viscount Nelson that sum of money interest-loose 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)