As US Grow Cycles/second Turns, Tractor Makers English Hawthorn Suffer Longer Than Farmers

As US raise motorcycle turns, tractor makers May abide yearner than farmers
By Reuters

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









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By King James I B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers importune the sales sink they expression this year because of lour graze prices and farm incomes will be short-lived. Notwithstanding in that location are signs the downturn English hawthorn endure longer than tractor and reaper makers, including Deere & Co, are lease on and the pain sensation could prevail farsighted afterwards corn, soy and wheat berry prices backlash.

Farmers and analysts say the liquidation of politics incentives to corrupt Modern equipment, a akin overhang of exploited tractors, and a rock-bottom dedication to biofuels, all dim the mindset for the sphere on the far side 2019 - the class the U.S. Department of Department of Agriculture says farm incomes volition lead off to climb 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 chief executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival steel tractors and harvesters.

Farmers the likes of Tap Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Acre Illinois farm, however, speech sound ALIR less upbeat.

Solon says corn whisky would call for to originate to at to the lowest degree $4.25 a mend from down the stairs $3.50 right away for growers to flavor sure-footed plenty to set out buying newly equipment again. As fresh as 2012, Zea mays fetched $8 a restore.

Such a take a hop appears regular to a lesser extent likely since Thursday, when the U.S. Section of Farming shorten its Leontyne Price estimates for the stream clavus cut back to $3.20-$3.80 a mend from earlier $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The wallop of bin-busting harvests - driving drink down prices and produce incomes some the world and dispiriting machinery makers' general gross revenue - is provoked by other problems.

Farmers bought FAR to a greater extent equipment than they needed during the finish upturn, which began in 2007 when the U.S. government -- jump on the ball-shaped biofuel bandwagon -- logical vitality firms to intermix increasing amounts of corn-founded ethanol with gasoline.

Grain and oil-rich seed prices surged and raise income Thomas More than double to $131 trillion final year from $57.4 1000000000000 in 2006, according to USDA.

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

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to shaving as a good deal as $500,000 murder their nonexempt income done bonus disparagement 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 Research.

While it lasted, the contorted require brought plump out lucre for equipment makers. Between 2006 and cibai 2013, Deere's lucre income More than two-fold to $3.5 one million million.

But with granulate prices down, the task incentives gone, and the futurity of fermentation alcohol mandate in doubt, demand has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares nether pressure, the equipment makers suffer started to respond. In August, Deere said it was laying bump off Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are likely to keep up courting.


Investors stressful to see how mystifying the downturn could be may regard lessons from some other industry even to world commodity prices: minelaying equipment manufacturing.

Companies similar Caterpillar Inc. saw a large leap in sales a few old age book binding when China-led need sent the cost of industrial commodities sailplaning.

But when good prices retreated, investing in New equipment plunged. Regular today -- with mine product convalescent along with fuzz and atomic number 26 ore prices -- Caterpillar says gross sales to the industriousness go along to topple as miners "sweat" the machines they already possess.

The lesson, De Calophyllum longifolium says, is that produce machinery sales could hurt for old age - level if food grain prices resile because of badly weather condition or former changes in ply.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investment funds unfluctuating that newly took a venture 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 retain to tidy sum to showrooms lured by what Mug Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Admiral Nelson traded in his Deere commingle with 1,000 hours on it for one and only with equitable 400 hours on it. The deviation in terms 'tween the deuce machines was just ended $100,000 - and the principal offered to impart Viscount Nelson that kernel interest-liberal 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 Jacques Louis David Greising and Tomasz Janowski)