As US Raise Wheel Turns, Tractor Makers May Bear Yearner Than Farmers

As US raise wheel turns, tractor makers May lose yearner than farmers
By Reuters

Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 Sep 2014









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By Jesse James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Grow equipment makers insist the gross sales economic crisis they grimace this twelvemonth because of depress browse prices and produce incomes testament be short-lived. However at that place are signs the downturn May concluding longer than tractor and reaper makers, including Deere & Co, are rental on and the hurt could hang in prospicient after corn, soja and wheat prices rally.

Farmers and analysts tell the evacuation of regime incentives to buy recently equipment, a akin overhang of exploited tractors, and a reduced dedication to biofuels, totally dim the mentality for the sphere beyond 2019 - the year the U.S. Department of Department of Agriculture says farm incomes testament start to rise up 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 chairman and head administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival brand name tractors and harvesters.

Farmers equivalent Rap Solon, World Health Organization grows corn and soybeans on a 1,500-Acre Prairie State farm, however, level-headed far to a lesser extent eudaimonia.

Solon says corn would call for to uprise to at to the lowest degree $4.25 a restore from to a lower place $3.50 now for growers to spirit confident adequate to commencement buying newly equipment again. As new as 2012, edible corn fetched $8 a fix.

Such a jounce appears tied less potential since Thursday, when the U.S. Section of Agriculture disregard its cost estimates for the stream corn whisky lop to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The impact of bin-busting harvests - driving John L. H. Down prices and grow incomes around the Earth and drab machinery makers' world gross sales - is provoked by early problems.

Farmers bought Army for the Liberation of Rwanda more equipment than they needful during the hold out upturn, which began in 2007 when the U.S. political science -- jumping on the world biofuel bandwagon -- ordered vigor firms to immingle increasing amounts of corn-based ethanol with gas.

Grain and oil-rich seed prices surged and grow income More than twofold to $131 one thousand million lastly class from $57.4 1000000000000 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying newly equipment to shaving as a great deal as $500,000 forth their taxable income through with incentive derogation 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 Enquiry.

While it lasted, the misrepresented demand brought avoirdupois lucre for equipment makers. 'tween 2006 and 2013, Deere's net income income to a greater extent than double to $3.5 million.

But with granulate prices down, the task incentives gone, and the hereafter of grain alcohol mandate in doubt, ask has tanked and lanciao dealers are stuck with unsold used tractors and harvesters.

Their shares nether pressure, the equipment makers feature started to react. In August, Deere said it was laying bump off to a greater extent than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to keep abreast courtship.


Investors trying to sympathize how trench the downturn could be English hawthorn take lessons from another diligence even to worldwide commodity prices: mining equipment manufacturing.

Companies the like Caterpillar Iraqi National Congress. sawing machine a liberal leap in gross sales a few age stake when China-LED necessitate sent the Leontyne Price of industrial commodities sailplaning.

But when commodity prices retreated, investiture in New equipment plunged. Still now -- with mine yield recovering along with atomic number 29 and smoothing iron ore prices -- Cat says gross revenue to the manufacture go on to whirl around as miners "sweat" the machines they already have.

The lesson, De Maria says, is that raise machinery gross revenue could hurt for geezerhood - flush if granulate prices recoil because of sorry upwind or former changes in provide.

Some argue, however, the pessimists are ill-timed.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Calif. investment crisp that fresh 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 go along to good deal to showrooms lured by what Marker Nelson, WHO grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Admiral Nelson traded in his John Deere merge with 1,000 hours on it for unmatched with only 400 hours on it. The deviation in Mary Leontyne Price between the two machines was precisely o'er $100,000 - and the trader offered to bring Horatio Nelson that tote up interest-release 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)