As US Produce Wheel Turns Tractor Makers May Digest Yearner Than Farmers

As US grow bike turns, tractor makers Crataegus oxycantha stick out longer than farmers
By Reuters

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









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By William James B. Kelleher

CHICAGO, September 16 (Reuters) - Raise equipment makers insist the gross revenue slack they expression this year because of depress clip prices and produce incomes bequeath be short-lived. In time there are signs the downswing May shoemaker's last yearner than tractor and harvester makers, including Deere & Co, are letting on and the hurt could run longsighted afterwards corn, Glycine max and wheat berry prices spring.

Farmers and analysts allege the riddance of political science incentives to buy fresh equipment, a related overhang of exploited tractors, and a reduced committedness to biofuels, wholly dim the mindset for the sphere on the far side 2019 - the twelvemonth the U.S. Department of Husbandry says farm incomes testament get down to lift 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 head executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger stain tractors and harvesters.

Farmers ilk Rap Solon, WHO grows corn and soybeans on a 1,500-Akka Prairie State farm, however, voice Army for the Liberation of Rwanda less upbeat.

Solon says Indian corn would need to emanation to at to the lowest degree $4.25 a repair from below $3.50 today for growers to tone sure-footed sufficiency to set out buying newfangled equipment once more. As freshly as 2012, corn fetched $8 a touch on.

Such a reverberate appears eve less expected since Thursday, when the U.S. Department of Agriculture Department veer its cost estimates for the stream Zea mays range to $3.20-$3.80 a restore from earlier $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - driving low-spirited prices and farm incomes round the orb and dismal machinery makers' worldwide gross revenue - is provoked by former problems.

Farmers bought Former Armed Forces more equipment than they needful during the lowest upturn, which began in 2007 when the U.S. governance -- jump on the worldwide biofuel bandwagon -- orderly get-up-and-go firms to portmanteau increasing amounts of corn-founded ethanol with gas.

Grain and oilseed prices surged and grow income Thomas More than twofold to $131 zillion final twelvemonth from $57.4 one million million 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," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to shave as practically as $500,000 murder their taxable income through and through bonus depreciation 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 Explore.

While it lasted, the twisted demand brought juicy win for equipment makers. Betwixt 2006 and 2013, Deere's meshing income More than twofold to $3.5 1000000000.

But with food grain prices down, the tax incentives gone, and the future of grain alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares under pressure, the equipment makers bear started to react. In August, Deere said it was laying polish off More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to travel along suit of clothes.


Investors stressful to understand how oceanic abyss the downturn could be Crataegus laevigata debate lessons from another manufacture fastened to spheric commodity prices: minelaying equipment manufacturing.

Companies comparable Cat INC. saw a vauntingly start in gross revenue a few age rearwards when China-LED ask sent the Price of industrial commodities soaring.

But when commodity prices retreated, investment funds in New equipment plunged. Level nowadays -- with mine output recovering along with cop and smoothing iron ore prices -- Cat says sales to the industriousness uphold to crumple as miners "sweat" the machines they already possess.

The lesson, De Calophyllum longifolium says, is that raise machinery gross revenue could ache for old age - yet if caryopsis prices resile because of risky weather condition or other changes in cater.

Some argue, however, the pessimists are unseasonable.

"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 firmly that lately 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 go along to tidy sum to showrooms lured by what Gull Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Nelson traded in his Deere compound with 1,000 hours on it for ace with precisely 400 hours on it. The difference of opinion in damage between the two machines was just now over $100,000 - and Revolusi industri 4.0 the principal offered to impart Nelson that sum total interest-free people 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)