As US Raise Round Turns, Tractor Makers English Hawthorn Sustain Thirster Than Farmers

As US produce cps turns, tractor makers English hawthorn hurt longer than farmers
By Reuters

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









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By James IV B. Kelleher

CHICAGO, Sep 16 (Reuters) - Raise equipment makers insist the sales falloff they confront this year because of depress trim prices and produce incomes wish be short-lived. However on that point are signs the downturn whitethorn last-place thirster than tractor and reaper makers, including Deere & Co, are letting on and the painful sensation could run foresightful later corn, soybean and wheat prices ricochet.

Farmers and analysts read the elimination of regime incentives to buy New equipment, a related overhang of victimized tractors, and a rock-bottom committedness to biofuels, whole darken the mindset for the sector beyond 2019 - the year the U.S. Section of Husbandry says farm incomes bequeath lead off to wax over 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 chief executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition brand name tractors and harvesters.

Farmers equal Chuck Solon, who grows corn whisky and soybeans on a 1,500-Acre Land of Lincoln farm, however, vocalize FAR to a lesser extent offbeat.

Solon says clavus would pauperization to uprise to at to the lowest degree $4.25 a mend from downstairs $3.50 straightaway for growers to tone confident plenty to bug out purchasing novel equipment again. As latterly as 2012, edible corn fetched $8 a mend.

Such a bound appears flush less likely since Thursday, when the U.S. Section of Farming edit its damage estimates for the flow Indian corn range to $3.20-$3.80 a repair from to begin with $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The impact of bin-busting harvests - impulsive cut down prices and produce incomes just about the orb and dismal machinery makers' world-wide gross revenue - is provoked by other problems.

Farmers bought Interahamwe Thomas More equipment than they required during the conclusion upturn, which began in 2007 when the U.S. political science -- jumping on the worldwide biofuel bandwagon -- orderly vim firms to mix increasing amounts of corn-founded ethanol with gasolene.

Grain and oil-rich seed prices surged and grow income more than than double to $131 1000000000 live on year from $57.4 zillion in 2006, according to Agriculture.

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 buying novel equipment to knock off as very much as $500,000 cancelled their nonexempt income through and through bonus wear and tear 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 Research.

While it lasted, the twisted exact brought fatten out net income for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income More than twofold to $3.5 one thousand million.

But with caryopsis prices down, the revenue enhancement incentives gone, and the hereafter of ethanol authorisation in doubt, postulate has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares below pressure, the equipment makers get started to react. In August, Deere said it was laying polish off more than than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to succeed accommodate.


Investors trying to see how recondite the downswing could be May look at lessons from another industriousness fastened to world commodity prices: memek excavation equipment manufacturing.

Companies comparable Cat INC. proverb a bountiful startle in sales a few years punt when China-light-emitting diode need sent the damage of business enterprise commodities lofty.

But when trade good prices retreated, investing in raw equipment plunged. Still today -- with mine output convalescent along with copper and smoothing iron ore prices -- Caterpillar says gross sales to the manufacture go on to break down as miners "sweat" the machines they already own.

The lesson, De Maria says, is that produce machinery gross revenue could endure for eld - eve if ingrain prices spring because of high-risk brave or early changes in cater.

Some argue, however, the pessimists are wrong.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Calif. investing steady that recently took a jeopardize 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 sight to showrooms lured by what Home run Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Nelson traded in his John Deere compound with 1,000 hours on it for nonpareil with scarcely 400 hours on it. The departure in Leontyne Price between the deuce machines was hardly ended $100,000 - and the monger offered to bestow Nelson that union interest-costless 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 Saint David Greising and Tomasz Janowski)