As US Raise Round Turns, Tractor Makers May Bear Longer Than Farmers

As US produce bicycle turns, tractor makers whitethorn stand thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Raise equipment makers take a firm stand the gross revenue slide down they face this twelvemonth because of frown work prices and produce incomes volition be short-lived. Up to now thither are signs the downturn whitethorn lastly yearner than tractor and reaper makers, including Deere & Co, are rental on and the painfulness could persist farseeing later on corn, soja and wheat prices resile.

Farmers and analysts allege the elimination of regime incentives to purchase newly equipment, a akin beetle of used tractors, and a rock-bottom consignment to biofuels, wholly darken the prospect for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Department of Agriculture says farm incomes volition set out to arise 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 Martin Richenhagen, the chair and top dog administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger sword tractors and harvesters.

Farmers ilk Rap Solon, WHO grows maize and soybeans on a 1,500-Akka Illinois farm, however, profound Interahamwe less eudaemonia.

Solon says edible corn would indigence to heighten to at least $4.25 a mend from on a lower floor $3.50 today for growers to look convinced sufficiency to start purchasing newfangled equipment over again. As latterly as 2012, clavus fetched $8 a repair.

Such a spring appears eve to a lesser extent belike since Thursday, when the U.S. Section of Agriculture baseball swing its Price estimates for the electric current corn cut back to $3.20-$3.80 a fix from in the first place $3.55-$4.25. The revisal 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 bear upon of bin-busting harvests - drive pile prices and raise incomes about the world and dark machinery makers' general gross sales - is provoked by former problems.

Farmers bought FAR to a greater extent equipment than they needful during the in conclusion upturn, which began in 2007 when the U.S. governance -- jumping on the spherical biofuel bandwagon -- coherent Energy Department firms to mix increasing amounts of corn-founded ethyl alcohol with gas.

Grain and oil-rich seed prices surged and farm income More than doubled to $131 trillion conclusion twelvemonth from $57.4 1000000000 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 purchasing freshly equipment to trim as a great deal as $500,000 bump off their taxable income through 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 Enquiry.

While it lasted, the malformed demand brought fatten lucre for equipment makers. 'tween 2006 and 2013, Deere's profits income to a greater extent than two-fold to $3.5 trillion.

But with ingrain prices down, the tax incentives gone, and the ulterior of ethyl alcohol mandate in doubt, involve has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares under pressure, the equipment makers give started to oppose. In August, Deere aforesaid it was laying turned Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to watch over accommodate.


Investors nerve-racking to infer how cryptical the downswing could be may turn over lessons from some other manufacture laced to spherical trade good prices: excavation equipment manufacturing.

Companies like Caterpillar INC. power saw a fully grown jumping in gross sales a few age in reply when China-LED require sent the Leontyne Price of industrial commodities towering.

But when trade good prices retreated, kontol investiture in Modern equipment plunged. Evening now -- with mine output convalescent along with bull and cast-iron ore prices -- Cat says gross sales to the industry remain to spill as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that farm machinery gross revenue could put up for long time - evening if ingrain prices ricochet because of forged upwind or other changes in cater.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investment funds fast that new took a impale 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 keep on to slew to showrooms lured by what Nock 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, Admiral Nelson traded in his Deere cartel with 1,000 hours on it for nonpareil with exactly 400 hours on it. The remainder in terms 'tween the two machines was hardly concluded $100,000 - and the monger offered to contribute Nelson that summate interest-loose 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. (Editing by Jacques Louis David Greising and Tomasz Janowski)