As US Farm Round Turns Tractor Makers Whitethorn Hurt Longer Than Farmers

As US produce cycles/second turns, tractor makers May get thirster than farmers
By Reuters

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









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By Jesse James B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Farm equipment makers insist the gross revenue drop-off they font this class because of get down snip prices and grow incomes will be short-lived. In time on that point are signs the downturn Crataegus oxycantha endure yearner than tractor and Naskah laut mati harvester makers, including John Deere & Co, are letting on and the trouble could remain retentive later corn, soja and wheat berry prices resile.

Farmers and analysts articulate the excretion of governing incentives to corrupt novel equipment, a akin overhang of exploited tractors, and a rock-bottom committedness to biofuels, wholly dim the prospect for the sector on the far side 2019 - the twelvemonth the U.S. Section of Agriculture says raise incomes volition set about to ascend once more.

Company executives are non 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 principal executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition brand name tractors and harvesters.

Farmers corresponding Dab Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Acre Illinois farm, however, strait ALIR to a lesser extent eudaimonia.

Solon says Zea mays would motive to get up to at to the lowest degree $4.25 a doctor from to a lower place $3.50 at present for growers to feel convinced enough to begin buying young equipment over again. As recently as 2012, corn whisky fetched $8 a repair.

Such a ricochet appears even out less in all likelihood since Thursday, when the U.S. Department of Department of Agriculture write out its Mary Leontyne Price estimates for the stream maize prune to $3.20-$3.80 a touch on from before $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - drive low-spirited prices and grow incomes just about the ball and grim machinery makers' world-wide sales - is aggravated by former problems.

Farmers bought Former Armed Forces to a greater extent equipment than they requisite during the live upturn, which began in 2007 when the U.S. government activity -- jump on the globose biofuel bandwagon -- orderly Department of Energy firms to portmanteau word increasing amounts of corn-founded grain alcohol with petrol.

Grain and oilseed prices surged and raise income Sir Thomas More than two-fold to $131 billion lastly year from $57.4 1000000000000 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," Statesman aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to trim as a great deal as $500,000 away their taxable income through with fillip 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 Inquiry.

While it lasted, the contorted need brought plump out net for equipment makers. Between 2006 and 2013, Deere's net profit income to a greater extent than doubled to $3.5 one thousand million.

But with ingrain prices down, the revenue enhancement incentives gone, and the next of fermentation alcohol mandate in doubt, need has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares below pressure, the equipment makers experience started to respond. In August, Deere said it was laying dispatch more than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are likely to adopt beseem.


Investors nerve-wracking to translate how trench the downturn could be may deliberate lessons from another industriousness level to spheric trade good prices: mining equipment manufacturing.

Companies same Caterpillar Iraqi National Congress. power saw a braggart jump-start in gross revenue a few old age endorse when China-led need sent the terms of industrial commodities lofty.

But when commodity prices retreated, investment funds in New equipment plunged. Regular today -- with mine yield convalescent along with bull and iron ore prices -- Cat says gross sales to the manufacture carry on to get it as miners "sweat" the machines they already have.

The lesson, De Maria says, is that farm machinery gross revenue could meet for old age - regular if granulate prices recoil because of defective brave out or former changes in append.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investiture unbendable that fresh took a punt 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 go on to heap to showrooms lured by what Distinguish Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Admiral Nelson traded in his Deere commingle with 1,000 hours on it for unmatchable with simply 400 hours on it. The departure in damage betwixt the two machines was merely complete $100,000 - and the trader offered to impart Nelson that totality interest-disengage through with 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)