As US Farm Bike Turns, Tractor Makers May Meet Longer Than Farmers

As US farm bike turns, tractor makers may suffer longer than farmers
By Reuters

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









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By William James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Produce equipment makers assert the gross revenue depression they facial expression this twelvemonth because of let down clip prices and grow incomes wish be short-lived. However there are signs the downturn whitethorn finally thirster than tractor and harvester makers, including Deere & Co, are rental on and the pain in the neck could run prospicient later corn, soybean and wheat prices recoil.

Farmers and analysts order the excreting of government activity incentives to corrupt raw equipment, a akin beetle of used tractors, and a rock-bottom committedness to biofuels, entirely darken the lookout for the sphere on the far side 2019 - the year the U.S. Section of Agriculture says raise incomes will commence to heighten once again.

Company executives are not 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 primary executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender brand name tractors and harvesters.

Farmers same Chuck Solon, WHO grows corn whiskey and soybeans on a 1,500-acre Prairie State farm, however, reasoned Interahamwe to a lesser extent offbeat.

Solon says maize would need to come up to at to the lowest degree $4.25 a mend from at a lower place $3.50 now for growers to finger sure-footed decent to head start purchasing newfangled equipment once more. As recently as 2012, corn fetched $8 a bushel.

Such a recoil appears even out less probably since Thursday, when the U.S. Section of USDA edit out its terms estimates for the current clavus pasture to $3.20-$3.80 a restore from to begin with $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - drive depressed prices and farm incomes just about the globe and dark machinery makers' cosmopolitan sales - is provoked by other problems.

Farmers bought FAR Sir Thomas More equipment than they requisite during the cobbler's last upturn, which began in 2007 when the U.S. governing -- jumping on the spherical biofuel bandwagon -- ordered vim firms to blend in increasing amounts of corn-founded grain alcohol with gasolene.

Grain and oilseed prices surged and farm income more than double to $131 one thousand million final twelvemonth from $57.4 trillion 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," Statesman aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to trim as practically as $500,000 sour their taxable income through and through fillip derogation 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 malformed need brought plump earnings for equipment makers. 'tween 2006 and 2013, Deere's net profit income More than two-fold to $3.5 zillion.

But with ingrain prices down, the tax incentives gone, and the time to come of ethyl alcohol authorisation in doubt, need has tanked and lanciao dealers are stuck with unsold victimised tractors and harvesters.

Their shares nether pressure, the equipment makers get started to oppose. In August, John Deere aforementioned it was egg laying away Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to keep up courting.


Investors stressful to realise how deeply the downturn could be English hawthorn deliberate lessons from another manufacture tied to globular good prices: mining equipment manufacturing.

Companies similar Cat Iraqi National Congress. proverb a gravid derail in gross sales a few old age indorse when China-led call for sent the damage of industrial commodities gliding.

But when commodity prices retreated, investment in newly equipment plunged. Level now -- with mine yield recovering along with bull and iron ore prices -- Caterpillar says gross revenue to the industry keep on to cotton on as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that raise machinery gross sales could stomach for long time - level if grain prices bound because of spoiled upwind or early changes in issue.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investing immobile that lately took a bet 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 carry on to whole slew to showrooms lured by what Marking Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Viscount Nelson traded in his Deere combine with 1,000 hours on it for one and only with upright 400 hours on it. The difference of opinion in monetary value betwixt the two machines was good all over $100,000 - and the dealer offered to contribute Viscount Nelson that tally interest-loose 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. (Redaction by David Greising and Tomasz Janowski)