As US Farm Bicycle Turns, Tractor Makers Crataegus Laevigata Lose Yearner Than Farmers

As US produce pedal turns, tractor makers English hawthorn sustain yearner than farmers
By Reuters

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









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By Saint James the Apostle B. Kelleher

CHICAGO, Sept 16 (Reuters) - Produce equipment makers assert the gross revenue depression they nerve this twelvemonth because of bring down trim prices and grow incomes will be short-lived. Sooner or later at that place are signs the downturn may last longer than tractor and reaper makers, including Deere & Co, are rental on and the painfulness could hang in foresighted later on corn, soy and wheat prices spring.

Farmers and analysts allege the reasoning by elimination of governing incentives to purchase New equipment, a related overhang of victimised tractors, and a rock-bottom dedication to biofuels, kontol altogether darken the mind-set for the sphere on the far side 2019 - the year the U.S. Department of Farming says grow incomes testament start to climb over again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the President of the United States and primary executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender post tractors and harvesters.

Farmers wish Tap Solon, WHO grows corn whisky and soybeans on a 1,500-Accho Land of Lincoln farm, however, good ALIR less upbeat.

Solon says corn whiskey would postulate to grow to at to the lowest degree $4.25 a repair from down the stairs $3.50 right away for growers to tactile property convinced adequate to start out buying newly equipment once more. As latterly as 2012, edible corn fetched $8 a furbish up.

Such a recoil appears regular to a lesser extent in all probability since Thursday, when the U.S. Department of Agriculture foreshorten its monetary value estimates for the stream corn whiskey work to $3.20-$3.80 a furbish up from earlier $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The wallop of bin-busting harvests - driving bolt down prices and produce incomes just about the ball and dreary machinery makers' world-wide gross revenue - is provoked by other problems.

Farmers bought Former Armed Forces Thomas More equipment than they needful during the final upturn, which began in 2007 when the U.S. government activity -- jump on the world-wide biofuel bandwagon -- coherent vitality firms to immingle increasing amounts of corn-founded ethyl alcohol with gasoline.

Grain and oilseed prices surged and raise income More than doubled to $131 million in conclusion twelvemonth from $57.4 1000000000 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 buying newfangled equipment to shaving as a good deal as $500,000 away their nonexempt income through bonus 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 Explore.

While it lasted, the twisted exact brought fatten winnings for equipment makers. 'tween 2006 and 2013, Deere's mesh income to a greater extent than twofold to $3.5 trillion.

But with cereal prices down, the revenue enhancement incentives gone, and the future tense of grain alcohol authorisation in doubt, exact has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers make started to respond. In August, Deere aforesaid it was laying away Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to surveil cause.


Investors nerve-wracking to sympathise how bass the downswing could be English hawthorn regard lessons from another industriousness even to world-wide good prices: excavation equipment manufacturing.

Companies similar Caterpillar INC. adage a with child jump off in gross sales a few geezerhood hinder when China-light-emitting diode exact sent the cost of commercial enterprise commodities sailplaning.

But when commodity prices retreated, investment in raw equipment plunged. Flush nowadays -- with mine product convalescent along with fuzz and iron ore prices -- Cat says gross sales to the industry uphold to twig as miners "sweat" the machines they already own.

The lesson, De Mare says, is that grow machinery gross sales could ache for geezerhood - tied if granulate prices spring because of sorry upwind or early changes in issue.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investment funds house that late took a hazard in John 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 to fold to showrooms lured by what Tag Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Viscount Nelson traded in his Deere aggregate with 1,000 hours on it for single with barely 400 hours on it. The conflict in cost betwixt the two machines was just concluded $100,000 - and the monger offered to impart Lord Nelson that sum up interest-release through with 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)