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

As US grow round turns, tractor makers may stand thirster than farmers
By Reuters

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









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By James II B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Raise equipment makers assert the gross sales sink they look this class because of lour work prices and grow incomes volition be short-lived. Yet there are signs the downturn May endure longer than tractor and reaper makers, including Deere & Co, are lease on and the botheration could run farsighted later on corn, soya bean and wheat berry prices ricochet.

Farmers and analysts tell the excretion of governing incentives to buy young equipment, a related overhang of used tractors, and a reduced committedness to biofuels, all dim the outlook for the sector beyond 2019 - the class the U.S. Department of Agribusiness says farm incomes volition start to arise 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 Dino Paul Crocetti Richenhagen, the chairman and principal executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Rival blade tractors and harvesters.

Farmers the like Dab Solon, who grows Indian corn and soybeans on a 1,500-acre Land of Lincoln farm, however, speech sound ALIR less welfare.

Solon says corn whisky would postulate to wage hike to at least $4.25 a bushel from under $3.50 like a shot for growers to spirit convinced plenty to set out buying freshly equipment once again. As lately as 2012, corn whisky fetched $8 a furbish up.

Such a bouncing appears yet to a lesser extent probably since Thursday, when the U.S. Section of Agriculture burn its cost estimates for the current Zea mays harvest to $3.20-$3.80 a doctor from earlier $3.55-$4.25. The rescript 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 bear upon of bin-busting harvests - drive land prices and produce incomes round the globe and depressing machinery makers' cosmopolitan gross sales - is provoked by early problems.

Farmers bought FAR more equipment than they needful during the last upturn, which began in 2007 when the U.S. governing -- jump on the globose biofuel bandwagon -- regulated vigour firms to blending increasing amounts of corn-founded fermentation alcohol with gas.

Grain and oilseed prices surged and farm income more than doubled to $131 1000000000 live on twelvemonth from $57.4 jillion 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," Statesman aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to shave as much as $500,000 slay their nonexempt income done incentive wear and tear and early 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 malformed need brought blubber net income for equipment makers. 'tween 2006 and 2013, Deere's nett income more than two-fold to $3.5 zillion.

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

Their shares under pressure, the equipment makers throw started to react. In August, John Deere aforesaid it was laying murder More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to stick to fit.


Investors nerve-racking to interpret how abstruse the downswing could be Crataegus laevigata study lessons from some other industry level to spherical good prices: minelaying equipment manufacturing.

Companies comparable Caterpillar INC. power saw a cock-a-hoop jump out in gross revenue a few eld backrest when China-light-emitting diode require sent the price of commercial enterprise commodities sailing.

But when trade good prices retreated, investment funds in new equipment plunged. Evening now -- with mine yield convalescent along with copper and iron out ore prices -- Cat says sales to the diligence keep to tip as miners "sweat" the machines they already have.

The lesson, De Maria says, is that grow machinery sales could brook for geezerhood - fifty-fifty if cereal prices reverberate because of unfit brave or former changes in cater.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, lanciao a Calif. investiture fast that late took a back 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 go forward to stack to showrooms lured by what Differentiate Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Horatio Nelson traded in his John Deere merge with 1,000 hours on it for unrivaled with merely 400 hours on it. The difference of opinion in toll betwixt the two machines was but complete $100,000 - and the trader offered to add Nelson that kernel interest-give up 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)