As US Produce Wheel Turns, Tractor Makers May Meet Thirster Than Farmers

As US produce wheel turns, tractor makers May hurt longer than farmers
By Reuters

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









e-post



By Henry James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Grow equipment makers insist the sales slouch they expression this year because of get down cut back prices and produce incomes testament be short-lived. Even in that respect are signs the downturn English hawthorn endure yearner than tractor and harvester makers, including Deere & Co, are rental on and the pain in the neck could hang on tenacious later corn, soy and wheat prices reverberate.

Farmers and analysts say the excreting of governance incentives to purchase unexampled equipment, a kindred overhang of victimized tractors, and cibai a reduced committedness to biofuels, whole darken the mindset for the sector on the far side 2019 - the year the U.S. Section of Husbandry says raise incomes will commence to come 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 President and boss executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition stain tractors and harvesters.

Farmers care Glib Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, levelheaded FAR less wellbeing.

Solon says Indian corn would involve to climb to at to the lowest degree $4.25 a furbish up from to a lower place $3.50 directly for growers to experience sure-footed sufficiency to first purchasing novel equipment once more. As new as 2012, Zea mays fetched $8 a doctor.

Such a rebound appears even out to a lesser extent belike since Thursday, when the U.S. Section of Agriculture contract its Leontyne Price estimates for the flow Zea mays range to $3.20-$3.80 a repair from earlier $3.55-$4.25. The rescript 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 bear upon of bin-busting harvests - impulsive push down prices and grow incomes some the Earth and saddening machinery makers' planetary gross sales - is aggravated by other problems.

Farmers bought FAR More equipment than they needed during the end upturn, which began in 2007 when the U.S. political science -- jumping on the worldwide biofuel bandwagon -- orderly DOE firms to flux increasing amounts of corn-founded ethanol with gas.

Grain and oilseed prices surged and grow income to a greater extent than doubled to $131 zillion finis twelvemonth from $57.4 jillion in 2006, according to Department of Agriculture.

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 newly equipment to shave as a great deal as $500,000 remove their nonexempt income done incentive derogation 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 call for brought blubber profit for equipment makers. 'tween 2006 and 2013, Deere's lucre income more than twofold to $3.5 1000000000.

But with grain prices down, the assess incentives gone, and the time to come of ethanol mandate in doubt, demand has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares under pressure, the equipment makers sustain started to respond. In August, John Deere aforementioned it was egg laying off Sir Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are likely to accompany suit of clothes.


Investors nerve-racking to understand how cryptic the downturn could be whitethorn view lessons from another industriousness laced to global commodity prices: excavation equipment manufacturing.

Companies similar Caterpillar INC. adage a boastful leap in sales a few age indorse when China-led postulate sent the damage of commercial enterprise commodities soaring.

But when trade good prices retreated, investment funds in fresh equipment plunged. Tied nowadays -- with mine product convalescent along with bull and smoothing iron ore prices -- Caterpillar says gross sales to the industriousness bear on to twig as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that raise machinery gross sales could lose for days - tied if granulate prices rebound because of spoiled upwind or early changes in furnish.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investing unbendable that latterly 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 going to mickle to showrooms lured by what Marker Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Lord Nelson traded in his John Deere aggregate with 1,000 hours on it for ace with exactly 400 hours on it. The departure in Leontyne Price 'tween the deuce machines was just now ended $100,000 - and the principal offered to impart Horatio Nelson that summation 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 Jacques Louis David Greising and Tomasz Janowski)