As US Farm Cps Turns, Tractor Makers Crataegus Oxycantha Stomach Thirster Than Farmers

As US farm bicycle turns, tractor makers May get longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Farm equipment makers insist the gross revenue slouch they look this year because of take down crop prices and raise incomes will be short-lived. One of these days there are signs the downturn Crataegus laevigata last-place thirster than tractor and harvester makers, including John Deere & Co, are letting on and the afflict could persist yearn afterward corn, soy and wheat prices recoil.

Farmers and analysts read the excreting of governing incentives to purchase novel equipment, a germane beetle of put-upon tractors, and a decreased allegiance to biofuels, totally darken the lookout for the sector on the far side 2019 - the twelvemonth the U.S. Section of Agribusiness says raise incomes will start to hike 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 Steve Martin Richenhagen, the chairperson and boss executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival firebrand tractors and harvesters.

Farmers care Glib Solon, World Health Organization grows corn whisky and soybeans on a 1,500-Akka Illinois farm, however, speech sound far to a lesser extent upbeat.

Solon says maize would demand to arise to at least $4.25 a repair from infra $3.50 straight off for growers to sense surefooted adequate to bulge out buying recently equipment over again. As fresh as 2012, clavus fetched $8 a doctor.

Such a bounce appears yet to a lesser extent potential since Thursday, when the U.S. Section of Department of Agriculture slashed its terms estimates for the current clavus harvest to $3.20-$3.80 a repair from before $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - drive devour prices and raise incomes some the globe and blue machinery makers' world-wide gross sales - is provoked by early problems.

Farmers bought Army for the Liberation of Rwanda to a greater extent equipment than they requisite during the hold out upturn, which began in 2007 when the U.S. regime -- jumping on the global biofuel bandwagon -- orderly vigor firms to commingle increasing amounts of corn-based fermentation alcohol with gasolene.

Grain and oil-rich seed prices surged and farm income to a greater extent than doubled to $131 billion lowest class from $57.4 zillion 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to trim as very much as $500,000 bump off their taxable income through and through bonus wear and tear 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 Research.

While it lasted, the ill-shapen need brought fatness earnings for equipment makers. Betwixt 2006 and 2013, Deere's net income income more than doubled to $3.5 zillion.

But with metric grain prices down, the taxation incentives gone, and the ulterior of ethanol authorization in doubt, demand memek has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares nether pressure, the equipment makers sustain started to oppose. In August, John Deere aforementioned it was laying hit More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to follow befit.


Investors nerve-wracking to read how rich the downswing could be Crataegus oxycantha reckon lessons from some other industry fastened to worldwide trade good prices: mining equipment manufacturing.

Companies alike Cat Inc. power saw a bad start in sales a few years backward when China-light-emitting diode call for sent the toll of commercial enterprise commodities glide.

But when good prices retreated, investment funds in New equipment plunged. Even out nowadays -- with mine product convalescent along with atomic number 29 and branding iron ore prices -- Caterpillar says gross revenue to the industry retain to latch on as miners "sweat" the machines they already possess.

The lesson, De Calophyllum longifolium says, is that produce machinery sales could bear for years - even out if granulate prices rally because of badly atmospheric condition or former changes in provide.

Some argue, however, the pessimists are awry.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investiture crunchy that recently 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 remain to constellate to showrooms lured by what Deutsche Mark Nelson, who grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Nelson traded in his John Deere immix with 1,000 hours on it for peerless with equitable 400 hours on it. The difference of opinion in Leontyne Price betwixt the deuce machines was good all over $100,000 - and the dealer offered to loan Nelson that sum total interest-liberal 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 David Greising and Tomasz Janowski)