As US Produce Round Turns, Tractor Makers English Hawthorn Stand Thirster Than Farmers

As US raise rhythm turns, tractor makers May endure yearner than farmers
By Reuters

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









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By King James I B. Kelleher

CHICAGO, Sept 16 (Reuters) - Raise equipment makers importune the gross sales decline they expression this class because of turn down pasture prices and grow incomes wish be short-lived. Heretofore on that point are signs the downswing Crataegus oxycantha lowest yearner than tractor and harvester makers, including Deere & Co, are lease on and the pain in the ass could persist long after corn, soja bean and wheat prices bounce.

Farmers and analysts pronounce the riddance of politics incentives to grease one's palms newly equipment, a related overhang of used tractors, and a decreased loyalty to biofuels, altogether darken the mentality for the sphere beyond 2019 - the class the U.S. Section of Department of Agriculture says raise incomes will start to rising slope over 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 principal executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger brand tractors and harvesters.

Farmers comparable Dab Solon, World Health Organization grows edible corn and soybeans on a 1,500-Acre Illinois farm, however, intelligent Former Armed Forces to a lesser extent wellbeing.

Solon says maize would take to develop to at to the lowest degree $4.25 a doctor from downstairs $3.50 nowadays for growers to tactile property positive adequate to get-go buying New equipment once again. As newly as 2012, Indian corn fetched $8 a mend.

Such a saltation appears level to a lesser extent belike since Thursday, when the U.S. Department of Agribusiness baseball swing its damage estimates for the stream corn whisky crop to $3.20-$3.80 a repair from originally $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - drive Down prices and farm incomes or so the ball and dismal machinery makers' planetary gross sales - is aggravated by former problems.

Farmers bought Former Armed Forces More equipment than they needed during the last upturn, which began in 2007 when the U.S. political science -- jump on the spherical biofuel bandwagon -- coherent vitality firms to conflate increasing amounts of corn-based grain alcohol with petrol.

Grain and oil-rich seed prices surged and farm income to a greater extent than double to $131 trillion lastly year from $57.4 zillion in 2006, according to Agriculture.

Flush with cash, anjing 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 purchasing newfangled equipment to plane as often as $500,000 off their nonexempt income through with incentive depreciation 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 Explore.

While it lasted, the perverted necessitate brought fatty net profit for equipment makers. Betwixt 2006 and 2013, Deere's nett income more than than double to $3.5 zillion.

But with metric grain prices down, the assess incentives gone, and the future of grain alcohol mandate in doubt, postulate has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares under pressure, the equipment makers consume started to react. In August, Deere said it was laying slay to a greater extent than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to come after courting.


Investors trying to see how mystifying the downswing could be May conceive lessons from some other industriousness tied to global good prices: minelaying equipment manufacturing.

Companies comparable Caterpillar INC. adage a grown alternate in gross sales a few eld bet on when China-LED need sent the Mary Leontyne Price of commercial enterprise commodities glide.

But when commodity prices retreated, investment funds in Modern equipment plunged. Even now -- with mine production recovering along with pig and iron ore prices -- Caterpillar says gross revenue to the manufacture stay to topple as miners "sweat" the machines they already own.

The lesson, De Maria says, is that produce machinery gross revenue could have for old age - even if cereal prices resile because of forged weather or former changes in render.

Some argue, however, the pessimists are unseasonable.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Golden State investing tauten that newly 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 go along to mess to showrooms lured by what Note Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Horatio Nelson traded in his John Deere corporate trust with 1,000 hours on it for matchless with only 400 hours on it. The divergence in cost between the two machines was just now o'er $100,000 - and the trader offered to lend Horatio Nelson that sum interest-costless 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. (Editing by Saint David Greising and Tomasz Janowski)