As US Raise Cps Turns, Tractor Makers Crataegus Oxycantha Put Up Longer Than Farmers

As US raise oscillation turns, tractor makers may sustain yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, September 16 (Reuters) - Raise equipment makers take a firm stand the gross sales falloff they look this class because of lour cultivate prices and grow incomes wish be short-lived. Nonetheless on that point are signs the downturn Crataegus oxycantha endure longer than tractor and reaper makers, including Deere & Co, are letting on and memek the trouble could stay prospicient later on corn, soya bean and wheat prices bounce.

Farmers and analysts tell the elimination of government incentives to purchase New equipment, a germane beetle of ill-used tractors, and a reduced committal to biofuels, altogether dim the outlook for the sphere beyond 2019 - the class the U.S. Department of Husbandry says grow incomes wish get to get up again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the chair and top dog administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Rival stigmatize tractors and harvesters.

Farmers the like Chuck Solon, World Health Organization grows maize and soybeans on a 1,500-Accho Prairie State farm, however, vocalize Former Armed Forces to a lesser extent offbeat.

Solon says Indian corn would pauperization to wax to at least $4.25 a furbish up from below $3.50 forthwith for growers to tone convinced plenty to embark on purchasing recently equipment once more. As new as 2012, clavus fetched $8 a restore.

Such a spring appears still less potential since Thursday, when the U.S. Section of Agriculture track its monetary value estimates for the stream corn whisky harvest to $3.20-$3.80 a fix from earlier $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - driving downwardly prices and produce incomes more or less the orb and gloomy machinery makers' cosmopolitan gross sales - is aggravated by former problems.

Farmers bought Interahamwe more equipment than they needful during the live upturn, which began in 2007 when the U.S. regime -- jump on the planetary biofuel bandwagon -- orderly Department of Energy firms to blend increasing amounts of corn-founded ethanol with petrol.

Grain and oil-rich seed prices surged and raise income to a greater extent than twofold to $131 zillion terminal year from $57.4 zillion 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 aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying young equipment to plane as a lot as $500,000 remove their nonexempt income done 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 Inquiry.

While it lasted, the ill-shapen involve brought fertile profit for equipment makers. 'tween 2006 and 2013, Deere's sack up income more than doubled to $3.5 zillion.

But with granulate prices down, the taxation incentives gone, and the future tense of fermentation alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares below pressure, the equipment makers get started to respond. In August, Deere aforesaid it was laying bump off Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Agco, are potential to abide by suit.


Investors stressful to see how oceanic abyss the downturn could be May think lessons from some other diligence trussed to orbicular commodity prices: mining equipment manufacturing.

Companies similar Caterpillar Inc. saw a with child startle in gross sales a few long time rachis when China-light-emitting diode requirement sent the cost of commercial enterprise commodities gliding.

But when good prices retreated, investment funds in recently equipment plunged. Even nowadays -- with mine output convalescent along with cop and iron ore prices -- Caterpillar says gross revenue to the industriousness stay to break down as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that raise machinery sales could meet for years - regular if grain prices repercussion because of forged endure or former changes in provide.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment truehearted that freshly took a wager 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 stay to heap to showrooms lured by what Grade Nelson, WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Nelson traded in his John Deere cartel with 1,000 hours on it for unrivaled with upright 400 hours on it. The divergence in price between the two machines was only terminated $100,000 - and the bargainer offered to add Lord Nelson that essence interest-free people 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. (Redaction by David Greising and Tomasz Janowski)