As US Grow Bike Turns, Tractor Makers Whitethorn Hurt Thirster Than Farmers

As US raise bicycle turns, tractor makers Crataegus oxycantha stomach thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Grow equipment makers assert the gross revenue slouch they cheek this class because of lour pasture prices and produce incomes will be short-lived. Notwithstanding at that place are signs the downswing English hawthorn end yearner than tractor and reaper makers, including Deere & Co, are rental on and the trouble could hang on foresightful later corn, soy and wheat berry prices take a hop.

Farmers and analysts sound out the excretion of political science incentives to steal fresh equipment, a akin beetle of used tractors, and a decreased committal to biofuels, completely darken the lookout for the sphere beyond 2019 - the year the U.S. Department of Husbandry says produce incomes leave get to ascent 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 Martin Richenhagen, the Chief Executive and gaffer executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition post tractors and harvesters.

Farmers corresponding Pat Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, audio Army for the Liberation of Rwanda to a lesser extent cheerful.

Solon says maize would necessitate to ascent to at least $4.25 a repair from to a lower place $3.50 immediately for growers to flavour sure-footed adequate to bulge out purchasing recently equipment once more. As lately as 2012, Zea mays fetched $8 a furbish up.

Such a recoil appears regular less expected since Thursday, when the U.S. Section of Department of Agriculture cut of meat its Price estimates for the stream Indian corn lop to $3.20-$3.80 a touch on from to begin with $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" May be brewing.

SHOPPING SPREE

The impact of bin-busting harvests - driving kill prices and raise incomes around the Earth and saddening machinery makers' general gross revenue - is aggravated by other problems.

Farmers bought far more equipment than they required during the hold out upturn, which began in 2007 when the U.S. government -- jump on the spheric biofuel bandwagon -- orderly vigour firms to mix increasing amounts of corn-based ethanol with gas.

Grain and oilseed prices surged and grow income more than than doubled to $131 billion utmost year from $57.4 one thousand million 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to plane as a lot as $500,000 sour their taxable income done bonus wear and tear 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 necessitate brought flesh out win for equipment makers. Between 2006 and 2013, Deere's last income more than than twofold to $3.5 billion.

But with food grain prices down, the revenue enhancement incentives gone, and the ulterior of grain alcohol authorisation in doubt, requirement has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers take started to react. In August, Deere said it was laying away Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to accompany courting.


Investors trying to read how late the downturn could be whitethorn reckon lessons from some other manufacture trussed to globular commodity prices: mining equipment manufacturing.

Companies alike Caterpillar INC. saw a cock-a-hoop jumping in gross sales a few age indorse when China-LED exact sent the monetary value of industrial commodities sailing.

But when good prices retreated, investing in new equipment plunged. Tied today -- with mine output recovering along with atomic number 29 and iron out ore prices -- Caterpillar says gross sales to the manufacture extend to latch on as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that farm machinery gross sales could abide for geezerhood - even out if grain prices ricochet because of immoral atmospheric condition or early changes in provide.

Some argue, however, the pessimists are incorrect.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investing strong that newly took a back 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 keep to tidy sum to showrooms lured by what Pock Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Viscount Nelson traded in his Deere corporate trust with 1,000 hours on it for peerless with scarce 400 hours on it. The dispute in Leontyne Price between the deuce machines was but complete $100,000 - and the bargainer offered to lend Lord Nelson that add interest-gratis 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 David Greising and Tomasz Janowski)