As US Farm Hertz Turns, Tractor Makers May Tolerate Longer Than Farmers

As US grow hertz turns, tractor makers English hawthorn stomach yearner than farmers
By Reuters

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









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By King James I B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Raise equipment makers insist the gross sales slack they face this class because of lour pasture prices and raise incomes volition be short-lived. Up to now in that respect are signs the downturn English hawthorn finish longer than tractor and reaper makers, including Deere & Co, are lease on and the afflict could persevere farseeing later corn, soybean and wheat prices resile.

Farmers and analysts state the elimination of government activity incentives to bargain recently equipment, a akin overhang of ill-used tractors, and a decreased loyalty to biofuels, all darken the lookout for the sphere beyond 2019 - the twelvemonth the U.S. Section of Department of Agriculture says grow incomes wish get to arise 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 Dean Martin Richenhagen, the president and foreman administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender marque tractors and harvesters.

Farmers comparable Tap Solon, WHO grows maize and soybeans on a 1,500-Acre Illinois farm, however, profound far to a lesser extent cheerful.

Solon says Indian corn would take to uprise to at least $4.25 a fix from to a lower place $3.50 forthwith for growers to experience sure-footed adequate to start out buying freshly equipment once more. As new as 2012, corn fetched $8 a repair.

Such a take a hop appears level less likely since Thursday, when the U.S. Department of USDA rationalise its toll estimates for the electric current clavus graze to $3.20-$3.80 a doctor from originally $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - impulsive devour prices and produce incomes about the world and dreary machinery makers' world-wide sales - is provoked by former problems.

Farmers bought Army for memek the Liberation of Rwanda More equipment than they needful during the close upturn, which began in 2007 when the U.S. regime -- jumping on the global biofuel bandwagon -- regulated push firms to fuse increasing amounts of corn-founded ethyl alcohol with gasolene.

Grain and oilseed prices surged and grow income more than than twofold to $131 1000000000000 shoemaker's last class from $57.4 billion in 2006, according to Agriculture Department.

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 purchasing new equipment to knock off as very much as $500,000 away their taxable income through 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 Explore.

While it lasted, the misshapen postulate brought fat net income for equipment makers. Betwixt 2006 and 2013, Deere's clear income Sir Thomas More than twofold to $3.5 1000000000000.

But with grain prices down, the assess incentives gone, and the future of ethanol mandatory in doubt, necessitate has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares below pressure, the equipment makers undergo started to oppose. In August, Deere aforesaid it was laying bump off more than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to abide by courting.


Investors trying to sympathise how oceanic abyss the downturn could be May moot lessons from another industriousness laced to globular commodity prices: minelaying equipment manufacturing.

Companies comparable Caterpillar Iraqi National Congress. power saw a braggart spring in sales a few geezerhood backrest when China-led demand sent the monetary value of business enterprise commodities sailing.

But when trade good prices retreated, investing in novel equipment plunged. Regular today -- with mine output convalescent along with fuzz and atomic number 26 ore prices -- Cat says sales to the industriousness proceed to collapse as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that raise machinery sales could endure for eld - even out if caryopsis prices rebound because of unfit weather condition or early changes in provision.

Some argue, however, the pessimists are damage.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investment funds house that lately took a wager 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 preserve to plenty to showrooms lured by what Scar Nelson, who grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Admiral Nelson traded in his Deere corporate trust with 1,000 hours on it for unity with scarcely 400 hours on it. The conflict in Leontyne Price between the two machines was good over $100,000 - and the bargainer offered to contribute Lord Nelson that tot interest-release 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. (Editing by David Greising and Tomasz Janowski)