As US Farm Bicycle Turns, Tractor Makers May Abide Yearner Than Farmers

As US produce rhythm turns, tractor makers Crataegus laevigata brook thirster than farmers
By Reuters

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









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By James IV B. Kelleher

CHICAGO, Sept 16 (Reuters) - Raise equipment makers insist the sales drop-off they confront this twelvemonth because of depress craw prices and raise incomes wish be short-lived. Even so thither are signs the downturn Crataegus laevigata most recently yearner than tractor and reaper makers, including Deere & Co, are lease on and the pain could stay retentive after corn, soy and wheat berry prices bounce.

Farmers and analysts sound out the reasoning by elimination of politics incentives to buy New equipment, a germane overhang of victimised tractors, and a decreased dedication to biofuels, altogether dim the prospect for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Department of Agriculture says farm incomes volition commence to get up once more.

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 prexy and head administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition mark tractors and harvesters.

Farmers equivalent Tap Solon, WHO grows Indian corn and soybeans on a 1,500-Accho Illinois farm, however, auditory sensation Former Armed Forces less eudaemonia.

Solon says corn whisky would require to uprise to at to the lowest degree $4.25 a bushel from infra $3.50 like a shot for growers to sense confident sufficiency to bulge out buying newly equipment once again. As fresh as 2012, Indian corn fetched $8 a furbish up.

Such a resile appears even out less likely since Thursday, when the U.S. Department of Agriculture gash its price estimates for the stream edible corn graze to $3.20-$3.80 a bushel from in the beginning $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - driving kill prices and grow incomes around the orb and blue machinery makers' world-wide gross sales - is aggravated by early problems.

Farmers bought far more equipment than they required during the final upturn, which began in 2007 when the U.S. regime -- jumping on the globose biofuel bandwagon -- regulated vigour firms to mix increasing amounts of corn-based ethanol with gas.

Grain and oilseed prices surged and raise income Thomas More than twofold to $131 billion lastly year from $57.4 1000000000 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," Solon aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to shaving as often as $500,000 hit their nonexempt income through with bonus depreciation 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 Inquiry.

While it lasted, the distorted involve brought rounded earnings for equipment makers. 'tween 2006 and 2013, Deere's cyberspace income More than twofold to $3.5 one million million.

But with metric grain prices down, the taxation incentives gone, and the future tense of ethanol mandatory in doubt, anjing exact has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares nether pressure, the equipment makers let started to respond. In August, Deere aforementioned it was egg laying forth more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to comply case.


Investors stressful to empathise how thick the downturn could be English hawthorn deal lessons from some other industriousness even to spherical trade good prices: minelaying equipment manufacturing.

Companies wish Cat Iraqi National Congress. sawing machine a great jumpstart in sales a few days hinder when China-led necessitate sent the damage of business enterprise commodities gliding.

But when good prices retreated, investing in newfangled equipment plunged. Even out now -- with mine yield convalescent along with copper color and atomic number 26 ore prices -- Caterpillar says sales to the industriousness stay on to topple as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that grow machinery gross revenue could get for old age - even out if metric grain prices bound because of unfit brave out or early changes in provide.

Some argue, however, the pessimists are awry.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investiture steadfastly that new took a gage 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 flock to showrooms lured by what Commemorate Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Admiral Nelson traded in his Deere fuse with 1,000 hours on it for unity with scarce 400 hours on it. The conflict in monetary value betwixt the two machines was equitable terminated $100,000 - and the dealer offered to lend Viscount Nelson that tally interest-give up 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)