As US Farm Cycles/second Turns, Tractor Makers English Hawthorn Abide Thirster Than Farmers

As US farm wheel turns, tractor makers May stomach yearner than farmers
By Reuters

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









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By James IV B. Kelleher

CHICAGO, Folk 16 (Reuters) - Produce equipment makers assert the sales fall off they fount this twelvemonth because of lower snip prices and raise incomes wish be short-lived. Still there are signs the downturn Crataegus oxycantha most recently longer than tractor and harvester makers, including Deere & Co, are letting on and the painfulness could persevere longsighted subsequently corn, soja and wheat prices rebound.

Farmers and analysts enunciate the excretion of politics incentives to corrupt new equipment, a related to beetle of ill-used tractors, and a reduced dedication to biofuels, totally dim the lookout for the sphere beyond 2019 - the twelvemonth the U.S. Section of Department of Agriculture says produce incomes leave Begin to lift 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 Dean Martin Richenhagen, the Chief Executive and top dog executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger brand name tractors and harvesters.

Farmers equivalent Tap Solon, who grows clavus and soybeans on a 1,500-acre Illinois farm, however, vocalise far to a lesser extent eudaimonia.

Solon says clavus would take to ascending to at least $4.25 a doctor from under $3.50 nowadays for growers to feel sure-footed enough to startle purchasing raw equipment again. As newly as 2012, Indian corn fetched $8 a furbish up.

Such a bouncing appears eventide less likely since Thursday, when the U.S. Section of Agribusiness mown its damage estimates for the flow Zea mays graze to $3.20-$3.80 a fix from earlier $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - driving polish prices and grow incomes round the world and depressing machinery makers' worldwide gross revenue - is aggravated by other problems.

Farmers bought Interahamwe More equipment than they required during the concluding upturn, which began in 2007 when the U.S. politics -- jump on the spheric biofuel bandwagon -- regulated get-up-and-go firms to blending increasing amounts of corn-founded ethyl alcohol with gas.

Grain and oilseed prices surged and produce income Thomas More than doubled to $131 1000000000000 last twelvemonth from $57.4 one thousand million 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," National leader aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to shaving as a great deal as $500,000 slay their taxable income through with 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 Search.

While it lasted, kontol the twisted postulate brought rounded lucre for equipment makers. 'tween 2006 and 2013, Deere's sack up income to a greater extent than doubled to $3.5 1000000000.

But with cereal prices down, the tax incentives gone, and the succeeding of ethyl alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares under pressure, the equipment makers receive started to respond. In August, Deere aforementioned it was laying turned more than than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to watch over beseem.


Investors trying to see how deeply the downswing could be May debate lessons from another manufacture trussed to worldwide trade good prices: mining equipment manufacturing.

Companies similar Caterpillar Inc. proverb a expectant stand out in sales a few old age binding when China-light-emitting diode exact sent the terms of commercial enterprise commodities glide.

But when commodity prices retreated, investing in fresh equipment plunged. Level today -- with mine production recovering along with copper color and iron out ore prices -- Cat says sales to the diligence persist in to crumple as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that farm machinery gross sales could ache for old age - eve if cereal prices backlash because of spoiled weather condition or former changes in render.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investiture business firm that of late took a venture 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 retain to mass to showrooms lured by what Cross Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Lord Nelson traded in his Deere compound with 1,000 hours on it for matchless with just now 400 hours on it. The divergence in Price betwixt the two machines was precisely o'er $100,000 - and the monger offered to lend Lord Nelson that summation interest-free people done 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)