As US Farm Cps Turns Tractor Makers May Endure Thirster Than Farmers

As US produce rhythm turns, tractor makers whitethorn suffer yearner than farmers
By Reuters

Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sept 2014









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By James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Grow equipment makers importune the sales sink they nerve this class because of turn down craw prices and grow incomes will be short-lived. Hitherto thither are signs the downswing may last yearner than tractor and reaper makers, including Deere & Co, are letting on and the ail could hold on yearn later on corn, Glycine max and wheat berry prices repercussion.

Farmers and analysts read the voiding of political science incentives to grease one's palms recently equipment, a akin beetle of victimized tractors, and a rock-bottom committal to biofuels, completely darken the prospect for the sphere beyond 2019 - the year the U.S. Section of Agriculture says produce incomes volition start to salary increase once again.

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 United States President and primary executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition firebrand Budidaya tanaman organik tractors and harvesters.

Farmers the likes of Tap Solon, WHO grows corn and soybeans on a 1,500-Akko Illinois farm, however, level-headed far less eudaemonia.

Solon says corn would pauperism to go up to at least $4.25 a mend from on a lower floor $3.50 forthwith for growers to palpate positive decent to take off buying New equipment once again. As new as 2012, corn fetched $8 a furbish up.

Such a bound appears regular to a lesser extent in all probability since Thursday, when the U.S. Department of Agribusiness hack its Price estimates for the electric current Indian corn clip to $3.20-$3.80 a furbish up from in the beginning $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - drive low-spirited prices and farm incomes some the ball and drear machinery makers' worldwide sales - is aggravated by other problems.

Farmers bought FAR Sir Thomas More equipment than they required during the concluding upturn, which began in 2007 when the U.S. government -- jump on the spheric biofuel bandwagon -- coherent get-up-and-go firms to intermingle increasing amounts of corn-founded ethanol with gasoline.

Grain and oilseed prices surged and farm income Thomas More than double to $131 1000000000 survive class from $57.4 trillion 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying unexampled equipment to plane as a lot as $500,000 polish off their nonexempt income done fillip derogation 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 Research.

While it lasted, the misshapen exact brought fertile earnings for equipment makers. Betwixt 2006 and 2013, Deere's web income more than double to $3.5 one million million.

But with granulate prices down, the revenue enhancement incentives gone, and the future tense of fermentation alcohol authorisation in doubt, call for has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares below pressure, the equipment makers bear started to react. In August, Deere aforementioned it was laying away more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to observe accommodate.


Investors trying to realize how oceanic abyss the downswing could be Crataegus oxycantha see lessons from another industriousness fastened to planetary good prices: mining equipment manufacturing.

Companies like Caterpillar INC. sawing machine a crowing jumping in gross sales a few old age rearwards when China-led call for sent the Mary Leontyne Price of commercial enterprise commodities soaring.

But when trade good prices retreated, investing in fresh equipment plunged. Eventide now -- with mine product convalescent along with atomic number 29 and iron out ore prices -- Caterpillar says gross revenue to the diligence keep to catch on as miners "sweat" the machines they already have.

The lesson, De Maria says, is that produce machinery sales could abide for long time - regular if food grain prices resile because of unsound weather condition or former changes in supply.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Calif. investing tauten that fresh took a post 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 stay on to batch to showrooms lured by what Deutschmark Nelson, who grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Nelson traded in his Deere cartel with 1,000 hours on it for nonpareil with barely 400 hours on it. The remainder in toll 'tween the deuce machines was scarcely all over $100,000 - and the dealer offered to impart Nelson that gist interest-liberate 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. (Redaction by David Greising and Tomasz Janowski)