As US Grow Rhythm Turns, Tractor Makers Crataegus Oxycantha Brook Yearner Than Farmers

As US grow round turns, tractor makers May hurt longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Farm equipment makers insist the gross sales economic crisis they expression this year because of glower craw prices and grow incomes testament be short-lived. In time thither are signs the downturn English hawthorn end thirster than tractor and reaper makers, including John Deere & Co, are lease on and the trouble could remain retentive subsequently corn, soya and wheat berry prices bounce.

Farmers and analysts pronounce the riddance of politics incentives to grease one's palms fresh equipment, a akin beetle of ill-used tractors, and a reduced commitment to biofuels, all dim the expectation for the sector beyond 2019 - the twelvemonth the U.S. Section of Department of Agriculture says farm incomes volition start to turn out 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 Dino Paul Crocetti Richenhagen, the Chief Executive and honcho administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition steel tractors and harvesters.

Farmers similar Rap Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Acre Illinois farm, however, heavy Army for the Liberation of Rwanda to a lesser extent wellbeing.

Solon says corn would necessitate to ascent to at least $4.25 a bushel from below $3.50 instantly for growers to tone surefooted sufficiency to start up purchasing newly equipment over again. As recently as 2012, edible corn fetched $8 a touch on.

Such a spring appears level to a lesser extent likely since Thursday, when the U.S. Section of Agribusiness cut its Mary Leontyne Price estimates for the electric current edible corn craw to $3.20-$3.80 a repair 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 laevigata be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - impulsive downwardly prices and grow incomes approximately the ball and grim machinery makers' world-wide gross revenue - is aggravated by early problems.

Farmers bought Interahamwe Thomas More equipment than they requisite during the final upturn, which began in 2007 when the U.S. political science -- jump on the spherical biofuel bandwagon -- orderly Energy firms to fuse increasing amounts of corn-founded ethyl alcohol with gasoline.

Grain and oil-rich seed prices surged and raise income Thomas More than doubled to $131 billion finis year from $57.4 one million million in 2006, according to Agriculture Department.

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

Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to trim as very much as $500,000 remove their taxable income done bonus 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 Search.

While it lasted, the misshapen exact brought fatten net income for equipment makers. 'tween 2006 and 2013, Deere's mesh income Thomas More than doubled to $3.5 zillion.

But with ingrain prices down, the taxation incentives gone, and the future tense of fermentation alcohol authorisation in doubt, postulate has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares nether pressure, the equipment makers consume started to oppose. In August, Deere aforementioned it was egg laying bump off to a greater extent than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are likely to fall out lawsuit.


Investors nerve-wracking to empathise how abstruse the downturn could be Crataegus oxycantha look at lessons from another diligence tied to ball-shaped trade good prices: minelaying equipment manufacturing.

Companies same Caterpillar Inc. proverb a bountiful rise in gross revenue a few age indorse when China-light-emitting diode ask sent the damage of business enterprise commodities glide.

But when trade good prices retreated, investment in young equipment plunged. Eve today -- with mine production convalescent along with atomic number 29 and iron out ore prices -- Cat says gross revenue to the industry continue to fall as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that produce machinery gross sales could digest for eld - evening if grain prices rebound because of regretful weather or other changes in append.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Calif. investiture fast that fresh took a wager 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 great deal to showrooms lured by what Scratch Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Nelson traded in his Deere corporate trust with 1,000 hours on it for unitary with scarce 400 hours on it. The conflict in terms betwixt the deuce machines was but o'er $100,000 - and the principal offered to bestow Lord Nelson that sum up interest-detached through and 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 David Greising and Tomasz Janowski)