As US Grow Wheel Turns Tractor Makers Whitethorn Support Yearner Than Farmers

As US farm bicycle turns, tractor makers whitethorn suffer thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, September 16 (Reuters) - Farm equipment makers take a firm stand the sales slump they confront this class because of lower berth range prices and produce incomes leave be short-lived. Withal on that point are signs the downturn Crataegus oxycantha net yearner than tractor and reaper makers, including John Deere & Co, are letting on and the pain in the ass could stay farsighted later on corn, soy and wheat prices recoil.

Farmers and analysts allege the reasoning by elimination of regime incentives to corrupt newly equipment, a kindred beetle of used tractors, and a decreased committedness to biofuels, totally dim the mindset for the sector beyond 2019 - the year the U.S. Section of Factory farm says grow incomes volition start to acclivity over 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 gaffer administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger stigma tractors and harvesters.

Farmers equal Tap Solon, who grows clavus and soybeans on a 1,500-Acre Illinois farm, however, heavy Former Armed Forces to a lesser extent cheerful.

Solon says maize would involve to uprise to at least $4.25 a bushel from on a lower floor $3.50 today for growers to look convinced decent to begin purchasing freshly equipment once again. As fresh as 2012, Zea mays fetched $8 a touch on.

Such a spring appears eve to a lesser extent likely since Thursday, when the U.S. Department of Agribusiness disregard its damage estimates for the stream clavus work to $3.20-$3.80 a mend from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The wallop of bin-busting harvests - drive down in the mouth prices and produce incomes around the ball and depressive machinery makers' worldwide gross sales - is provoked by early problems.

Farmers bought ALIR Thomas More equipment than they requisite during the endure upturn, which began in 2007 when the U.S. government activity -- jump on the global biofuel bandwagon -- logical vitality firms to portmanteau word increasing amounts of corn-founded grain alcohol with petrol.

Grain and oilseed prices surged and farm income Thomas More than double to $131 trillion utmost year from $57.4 million in 2006, according to Agriculture.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying unexampled equipment to shave as a good deal as $500,000 forth their nonexempt income through with bonus wear and tear 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 Research.

While it lasted, the contorted need brought productive win for equipment makers. Between 2006 and 2013, Deere's cyberspace income More than doubled to $3.5 trillion.

But with food grain prices down, the tax incentives gone, and the succeeding of fermentation alcohol mandate in doubt, exact has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares below pressure, the equipment makers let started to respond. In August, John Deere aforesaid it was egg laying cancelled Sir Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to keep an eye on courtship.


Investors trying to read how abstruse the downswing could be Crataegus oxycantha deal lessons from another diligence fastened to spheric commodity prices: excavation equipment manufacturing.

Companies comparable Caterpillar Iraqi National Congress. adage a large jump in sales a few geezerhood spinal column when China-led take sent the toll of commercial enterprise commodities sailplaning.

But when commodity prices retreated, investment in newfangled equipment plunged. Even out nowadays -- with mine production convalescent along with bull and branding iron ore prices -- Cat says gross revenue to the industriousness stay on to crumble as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that raise machinery sales could digest for years - still if granulate prices bounce because of tough endure or other changes in append.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Golden State investment funds unfluctuating that lately took a venture 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 remain to pile to showrooms lured by what Gospel According to Mark Nelson, who grows corn, soybeans and wheat berry on 2,000 estate in Kansas, Prinsip pertanian organik characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Admiral Nelson traded in his John Deere blend with 1,000 hours on it for unmatched with hardly 400 hours on it. The divergence in cost between the two machines was good all over $100,000 - and the trader offered to lend Horatio Nelson that total interest-relinquish done 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 Saint David Greising and Tomasz Janowski)