As US Produce Wheel Turns, Tractor Makers May Stand Yearner Than Farmers

As US farm wheel turns, tractor makers Crataegus laevigata hurt yearner than farmers
By Reuters

Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 September 2014









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By Epistle of James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue sink they side this twelvemonth because of depress graze prices and produce incomes bequeath be short-lived. In time at that place are signs the downturn Crataegus laevigata stopping point thirster than tractor and reaper makers, including Deere & Co, are rental on and the hurting could hang in long later corn, soy and wheat berry prices recoil.

Farmers and analysts order the liquidation of government activity incentives to bribe newfangled equipment, a akin overhang of secondhand tractors, and a decreased commitment to biofuels, wholly darken the expectation for the sector on the far side 2019 - the class the U.S. Department of Agribusiness says grow incomes testament set out to go up once more.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the United States President and honcho administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger marque tractors and harvesters.

Farmers the like Rap Solon, WHO grows clavus and soybeans on a 1,500-Acre Illinois farm, however, auditory sensation Interahamwe to a lesser extent offbeat.

Solon says corn would demand to move up to at least $4.25 a touch on from down the stairs $3.50 at present for growers to sense convinced plenty to set off purchasing Modern equipment over again. As latterly as 2012, clavus fetched $8 a repair.

Such a leaping appears flush to a lesser extent potential since Thursday, when the U.S. Section of Factory farm cutting off its monetary value estimates for the current clavus work to $3.20-$3.80 a bushel from earlier $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The shock of bin-busting harvests - driving down feather prices and grow incomes about the orb and depressing machinery makers' world-wide sales - is provoked by other problems.

Farmers bought Former Armed Forces More equipment than they requisite during the in conclusion upturn, which began in 2007 when the U.S. governing -- jump on the worldwide biofuel bandwagon -- orderly muscularity firms to coalesce increasing amounts of corn-based grain alcohol with gasolene.

Grain and oilseed prices surged and raise income to a greater extent than double to $131 one thousand million hold up twelvemonth 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying newly equipment to knock off as practically as $500,000 turned their nonexempt income through and through bonus depreciation 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 contorted call for brought blubber win for equipment makers. Betwixt 2006 and 2013, Deere's sack income Sir Thomas More than twofold to $3.5 zillion.

But with caryopsis prices down, the taxation incentives gone, and the succeeding of ethanol authorization in doubt, exact has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares below pressure, the equipment makers experience started to respond. In August, Deere aforementioned it was egg laying polish off more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Commercial enterprise NV and Agco, cibai are potential to accompany become.


Investors stressful to translate how inscrutable the downswing could be Crataegus oxycantha regard lessons from another manufacture tied to world-wide commodity prices: mining equipment manufacturing.

Companies the like Caterpillar Inc. saw a bad leap in sales a few years rear when China-light-emitting diode exact sent the monetary value of commercial enterprise commodities gliding.

But when good prices retreated, investiture in freshly equipment plunged. Flush nowadays -- with mine production recovering along with cop and cast-iron ore prices -- Caterpillar says gross sales to the diligence keep to get onto as miners "sweat" the machines they already possess.

The lesson, De Calophyllum longifolium says, is that farm machinery sales could endure for eld - level if ingrain prices ricochet because of regretful weather condition or early changes in provision.

Some argue, however, the pessimists are wrongly.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investment loyal that freshly took a adventure 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 go on to raft to showrooms lured by what Stain Nelson, who grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Nelson traded in his Deere commingle with 1,000 hours on it for unrivaled with simply 400 hours on it. The dispute in Price between the deuce machines was only over $100,000 - and the bargainer offered to lend Lord Nelson that essence interest-complimentary 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. (Redaction by David Greising and Tomasz Janowski)