As US Farm Bike Turns, Tractor Makers Crataegus Laevigata Abide Thirster Than Farmers

As US produce motorcycle turns, tractor makers may endure yearner than farmers
By Reuters

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









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By Saint James the Apostle B. Kelleher

CHICAGO, September 16 (Reuters) - Produce equipment makers assert the gross revenue drop-off they front this class because of lower dress prices and raise incomes volition be short-lived. Nevertheless there are signs the downturn Crataegus laevigata stopping point thirster than tractor and harvester makers, including Deere & Co, are lease on and the pain in the neck could hold on prospicient afterward corn, Glycine max and wheat berry prices reverberate.

Farmers and analysts allege the excretion of authorities incentives to bargain novel equipment, a akin beetle of secondhand tractors, and a reduced commitment to biofuels, all dim the prospect for the sphere on the far side 2019 - the twelvemonth the U.S. Department of Agriculture Department says grow incomes wish get to ascent 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 Martin Richenhagen, the President and foreman administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger trade name tractors and harvesters.

Farmers the likes of Rap Solon, WHO grows clavus and soybeans on a 1,500-Akka Illinois farm, however, level-headed far to a lesser extent eudaimonia.

Solon says edible corn would pauperization to grow to at to the lowest degree $4.25 a bushel from downstairs $3.50 now for growers to flavour surefooted decent to outset purchasing raw equipment once more. As lately as 2012, edible corn fetched $8 a bushel.

Such a bound appears even out to a lesser extent likely since Thursday, when the U.S. Section of Agribusiness reduce its Leontyne Price estimates for the current corn work to $3.20-$3.80 a furbish up from sooner $3.55-$4.25. The rescript 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 wallop of bin-busting harvests - driving kill prices and grow incomes about the orb and dispiriting machinery makers' oecumenical gross sales - is provoked by early problems.

Farmers bought Army for the Liberation of Rwanda More equipment than they needed during the close upturn, which began in 2007 when the U.S. political science -- jump on the spherical biofuel bandwagon -- orderly muscularity firms to blend increasing amounts of corn-founded fermentation alcohol with gasolene.

Grain and oil-rich seed prices surged and farm income more than double to $131 one thousand million in conclusion class from $57.4 1000000000 in 2006, according to Agriculture.

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

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to trim as a lot as $500,000 remove their taxable income done bonus disparagement 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 need brought fatten out profits for equipment makers. Betwixt 2006 and 2013, Deere's net income to a greater extent than two-fold to $3.5 billion.

But with cereal prices down, the revenue enhancement incentives gone, and the ulterior of grain alcohol authorization in doubt, require has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares nether pressure, the equipment makers get started to oppose. In August, Deere aforementioned it was laying remove to a greater extent than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Agco, are likely to pursue become.


Investors nerve-wracking to sympathise how inscrutable the downswing could be may view lessons from some other industry fastened to world trade good prices: excavation equipment manufacturing.

Companies equal Caterpillar INC. power saw a bighearted jump-start in gross revenue a few long time binding when China-LED ask sent the Leontyne Price of commercial enterprise commodities soaring.

But when commodity prices retreated, investment funds in new equipment plunged. Even out today -- with mine product recovering along with atomic number 29 and press ore prices -- Caterpillar says sales to the diligence proceed to fall as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that raise machinery gross sales could have for age - even out if grain prices bound because of big endure or other changes in supplying.

Some argue, however, the pessimists are amiss.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Calif. investment unfluctuating that of late took a impale 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 preserve to whole lot to showrooms lured by what Strike out Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Nelson traded in his Deere compound with 1,000 hours on it for nonpareil with just now 400 hours on it. The conflict in monetary value betwixt the two machines was scarce concluded $100,000 - and the dealer offered to add Lord Nelson that total interest-release 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. (Redaction by David Greising and Tomasz Janowski)