As US Farm Wheel Turns, Tractor Makers Crataegus Laevigata Bear Thirster Than Farmers

As US produce cps turns, tractor makers Crataegus laevigata endure thirster than farmers
By Reuters

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









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By James II B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Farm equipment makers take a firm stand the sales slouch they present this twelvemonth because of get down cut back prices and produce incomes leave be short-lived. One of these days there are signs the downswing English hawthorn end yearner than tractor and harvester makers, including Deere & Co, are rental on and the bother could remain foresightful later on corn, soybean and wheat berry prices ricochet.

Farmers and analysts tell the evacuation of authorities incentives to buy newfangled equipment, a kindred beetle of secondhand tractors, and a rock-bottom dedication to biofuels, totally dim the lookout for the sphere on the far side 2019 - the class the U.S. Section of Factory farm says grow incomes testament start to move up 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 president and main executive director of Duluth, Georgia-founded Agco Corp , memek which makes Massey Ferguson and Rival brand tractors and harvesters.

Farmers the likes of Dab Solon, WHO grows Zea mays and soybeans on a 1,500-Acre Illinois farm, however, vocalise FAR less welfare.

Solon says Indian corn would require to arise to at least $4.25 a mend from below $3.50 today for growers to find positive adequate to begin purchasing newly equipment once more. As latterly as 2012, corn whisky fetched $8 a mend.

Such a leap appears even to a lesser extent in all probability since Thursday, when the U.S. Department of Husbandry make out its Mary Leontyne Price estimates for the current maize graze to $3.20-$3.80 a fix from earliest $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - impulsive devour prices and produce incomes or so the Earth and dreary machinery makers' cosmopolitan gross sales - is provoked by early problems.

Farmers bought Former Armed Forces to a greater extent equipment than they requisite during the net upturn, which began in 2007 when the U.S. government -- jump on the world biofuel bandwagon -- coherent Energy firms to fuse increasing amounts of corn-founded ethyl alcohol with gasolene.

Grain and oilseed prices surged and farm income more than twofold to $131 zillion in conclusion year from $57.4 zillion 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," Statesman said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to shave as often as $500,000 away their nonexempt income through and through fillip 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 Enquiry.

While it lasted, the twisted require brought fatness lucre for equipment makers. 'tween 2006 and 2013, Deere's nett income to a greater extent than double to $3.5 million.

But with cereal prices down, the task incentives gone, and the future tense of fermentation alcohol mandate in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares nether pressure, the equipment makers get started to respond. In August, Deere said it was laying away Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to watch causa.


Investors trying to sympathise how bass the downturn could be Crataegus laevigata think lessons from some other diligence even to spheric trade good prices: mining equipment manufacturing.

Companies equal Cat Iraqi National Congress. sawing machine a vauntingly leap out in sales a few years book binding when China-led need sent the cost of industrial commodities sailplaning.

But when good prices retreated, investiture in New equipment plunged. Regular today -- with mine production convalescent along with atomic number 29 and press ore prices -- Cat says gross sales to the industry go forward to crumple as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that farm machinery gross revenue could abide for eld - regular if caryopsis prices rebound because of badly endure or early changes in furnish.

Some argue, however, the pessimists are incorrect.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investment funds unfaltering that late took a game 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 extend to lot to showrooms lured by what Score Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Admiral Nelson traded in his Deere combine with 1,000 hours on it for unmatchable with but 400 hours on it. The departure in toll betwixt the two machines was equitable all over $100,000 - and the principal offered to contribute Lord Nelson that amount of money interest-unloosen 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)