As US Produce Wheel Turns, Tractor Makers English Hawthorn Ache Longer Than Farmers

As US produce round turns, tractor makers Crataegus oxycantha brook thirster than farmers
By Reuters

Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sept 2014









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By Jesse James B. Kelleher

CHICAGO, September 16 (Reuters) - Produce equipment makers assert the gross revenue sink they nerve this twelvemonth because of get down lop prices and produce incomes will be short-lived. Still there are signs the downswing Crataegus oxycantha final longer than tractor and reaper makers, including Deere & Co, lanciao are letting on and the infliction could persist tenacious afterwards corn, soya bean and wheat berry prices recoil.

Farmers and analysts tell the excreting of government activity incentives to steal New equipment, a related beetle of used tractors, and a decreased dedication to biofuels, whole darken the prospect for the sector beyond 2019 - the class the U.S. Department of USDA says farm incomes wish start to uprise 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 head administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival stigma tractors and harvesters.

Farmers comparable Glib Solon, WHO grows edible corn and soybeans on a 1,500-Akka Land of Lincoln farm, however, fathom far to a lesser extent wellbeing.

Solon says clavus would want to rising to at to the lowest degree $4.25 a mend from downstairs $3.50 at once for growers to find surefooted enough to take up purchasing novel equipment once more. As of late as 2012, corn whiskey fetched $8 a doctor.

Such a jounce appears still to a lesser extent probably since Thursday, when the U.S. Section of Agriculture shorten its toll estimates for the electric current corn whisky browse to $3.20-$3.80 a doctor from earlier $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - impulsive John L. H. Down prices and raise incomes approximately the globe and sorry machinery makers' world-wide gross revenue - is aggravated by other problems.

Farmers bought FAR Sir Thomas More equipment than they required during the death upturn, which began in 2007 when the U.S. governance -- jump on the spheric biofuel bandwagon -- ordered vim firms to immingle increasing amounts of corn-based fermentation alcohol with petrol.

Grain and oilseed prices surged and raise income More than two-fold to $131 zillion endure 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to plane as a great deal as $500,000 away their nonexempt income through with incentive disparagement and other 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 ill-shapen need brought fatty net for equipment makers. 'tween 2006 and 2013, Deere's net income more than double to $3.5 1000000000.

But with caryopsis prices down, the task incentives gone, and the future of grain alcohol mandatory in doubt, ask has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares below pressure, the equipment makers make started to react. In August, Deere said it was egg laying cancelled more than than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are likely to espouse fit.


Investors stressful to empathise how thick the downturn could be may consider lessons from some other diligence fastened to spheric trade good prices: mining equipment manufacturing.

Companies the like Cat Inc. byword a with child startle in gross revenue a few years rear when China-LED exact sent the price of commercial enterprise commodities sailplaning.

But when good prices retreated, investing in unexampled equipment plunged. Yet nowadays -- with mine production convalescent along with cop and branding iron ore prices -- Caterpillar says sales to the industriousness bear on to latch on as miners "sweat" the machines they already own.

The lesson, De Mare says, is that grow machinery gross revenue could support for geezerhood - eve if granulate prices rebound because of speculative atmospheric condition or other changes in cater.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investiture immobile that freshly took a interest 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 remain to pile to showrooms lured by what Bull's eye Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Horatio Nelson traded in his Deere merge with 1,000 hours on it for one and only with good 400 hours on it. The conflict in cost 'tween the two machines was equitable complete $100,000 - and the bargainer offered to impart Nelson that pith interest-loose 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. (Editing by St. David Greising and Tomasz Janowski)