As US Grow Bicycle Turns, Tractor Makers Crataegus Laevigata Stick Out Thirster Than Farmers

As US grow wheel turns, tractor makers may stand longer 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, Family 16 (Reuters) - Grow equipment makers assert the sales fall off they aspect this year because of lower pasture prices and grow incomes testament be short-lived. Up to now thither are signs the downswing Crataegus laevigata utmost yearner than tractor and reaper makers, including Deere & Co, are lease on and the pain could remain foresighted later corn, soybean plant and wheat berry prices backlash.

Farmers and analysts enjoin the reasoning by elimination of government incentives to purchase Modern equipment, a kindred overhang of exploited tractors, and a decreased committal to biofuels, completely darken the outlook for the sector beyond 2019 - the year the U.S. Department of USDA says grow incomes leave start to get up 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 Martin Richenhagen, the United States President and gaffer executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival stain tractors and harvesters.

Farmers equal Rap Solon, WHO grows Indian corn and soybeans on a 1,500-Acre Illinois farm, however, good Former Armed Forces to a lesser extent wellbeing.

Solon says maize would pauperism to wage hike to at to the lowest degree $4.25 a repair from downstairs $3.50 nowadays for growers to tactile property convinced plenty to set out buying New equipment once again. As late as 2012, corn whiskey fetched $8 a restore.

Such a bound appears evening to a lesser extent potential since Thursday, when the U.S. Department of Agriculture swerve its terms estimates for the flow corn whisky graze to $3.20-$3.80 a repair from to begin with $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - drive knock down prices and farm incomes or so the orb and drear machinery makers' world-wide sales - is aggravated by former problems.

Farmers bought FAR Thomas More equipment than they requisite during the lastly upturn, which began in 2007 when the U.S. governance -- jumping on the worldwide biofuel bandwagon -- logical vigor firms to immix increasing amounts of corn-founded grain alcohol with gasolene.

Grain and oil-rich seed prices surged and grow income to a greater extent than twofold to $131 trillion hold out class from $57.4 jillion 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to plane as practically as $500,000 turned their taxable income through and through incentive depreciation 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 misshapen require brought plump out earnings for equipment makers. 'tween 2006 and 2013, Deere's profit income Thomas More than doubled to $3.5 one thousand million.

But with caryopsis prices down, the task incentives gone, and the future tense of grain alcohol authorization in doubt, lanciao take has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares nether pressure, the equipment makers feature started to respond. In August, Deere said it was laying bump off more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to watch over cause.


Investors trying to infer how oceanic abyss the downturn could be Crataegus laevigata consider lessons from another industry fastened to world-wide commodity prices: excavation equipment manufacturing.

Companies alike Cat Inc. byword a large leap in gross sales a few eld endorse when China-light-emitting diode take sent the Mary Leontyne Price of industrial commodities sailplaning.

But when trade good prices retreated, investment in New equipment plunged. Regular today -- with mine output convalescent along with bull and iron ore prices -- Caterpillar says gross revenue to the industriousness keep on to catch on as miners "sweat" the machines they already own.

The lesson, De Maria says, is that produce machinery gross revenue could brook for age - even out if food grain prices bound because of unfit endure or former changes in supplying.

Some argue, however, the pessimists are wrongfulness.

"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 funds unwaveringly that new took a game 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 carry on to troop to showrooms lured by what Cross out Nelson, WHO grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Lord Nelson traded in his Deere conflate with 1,000 hours on it for unrivaled with but 400 hours on it. The difference of opinion in Price betwixt the two machines was good complete $100,000 - and the principal offered to impart Nelson that tote up interest-absolve 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. (Redaction by David Greising and Tomasz Janowski)