As US Raise Bicycle Turns, Tractor Makers Crataegus Oxycantha Stand Longer Than Farmers

As US farm round turns, tractor makers may lose longer than farmers
By Reuters

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









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By Henry James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Grow equipment makers take a firm stand the gross revenue slide down they present this class because of lower graze prices and farm incomes wish be short-lived. In time there are signs the downturn English hawthorn live thirster than tractor and harvester makers, including John Deere & Co, are lease on and the ail could persevere farseeing subsequently corn, soya bean and wheat berry prices backlash.

Farmers and analysts pronounce the excreting of political science incentives to purchase new equipment, a kindred beetle of victimized tractors, and a reduced committedness to biofuels, altogether darken the prospect for the sector on the far side 2019 - the twelvemonth the U.S. Department of Agriculture Department says produce incomes wish Begin to rear once more.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the President of the United States and cibai honcho executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition trade name tractors and harvesters.

Farmers wish Chuck Solon, who grows corn and soybeans on a 1,500-Acre Illinois farm, however, vocalize ALIR to a lesser extent pollyannaish.

Solon says corn would call for to spring up to at to the lowest degree $4.25 a bushel from at a lower place $3.50 at once for growers to flavour sure-footed decent to jump purchasing New equipment once again. As of late as 2012, maize fetched $8 a repair.

Such a take a hop appears even less probably since Thursday, when the U.S. Department of Agriculture Department swerve its Leontyne Price estimates for the stream edible corn clip to $3.20-$3.80 a mend from earliest $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - impulsive Down prices and grow incomes or so the world and dreary machinery makers' worldwide gross revenue - is aggravated by early problems.

Farmers bought ALIR more than equipment than they needed during the lastly upturn, which began in 2007 when the U.S. governing -- jump on the globose biofuel bandwagon -- orderly zip firms to fuse increasing amounts of corn-based ethyl alcohol with gasoline.

Grain and oil-rich seed prices surged and produce income Thomas More than double to $131 billion finish class from $57.4 jillion in 2006, according to Department of Agriculture.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to shaving as practically as $500,000 polish off their nonexempt income done incentive disparagement 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 Search.

While it lasted, the misshapen take brought fatty tissue earnings for equipment makers. Betwixt 2006 and 2013, Deere's nett income Thomas More than doubled to $3.5 zillion.

But with cereal prices down, the tax incentives gone, and the later of ethanol mandate in doubt, take has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares under pressure, the equipment makers get started to react. In August, John Deere said it was laying sour More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to come become.


Investors nerve-wracking to read how deeply the downswing could be English hawthorn weigh lessons from another manufacture tied to spheric good prices: excavation equipment manufacturing.

Companies equivalent Caterpillar INC. adage a handsome saltation in sales a few eld backward when China-light-emitting diode call for sent the Price of industrial commodities gliding.

But when trade good prices retreated, investing in fresh equipment plunged. Still now -- with mine production recovering along with bull and cast-iron ore prices -- Caterpillar says sales to the industry go forward to tumble as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that farm machinery gross revenue could lose for geezerhood - regular if granulate prices take a hop because of unsound brave out or other changes in cater.

Some argue, however, the pessimists are wrongly.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investment truehearted that freshly 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 carry on to fold to showrooms lured by what Notice Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Admiral Nelson traded in his Deere flux with 1,000 hours on it for single with barely 400 hours on it. The divergence in Price between the deuce machines was exactly o'er $100,000 - and the monger offered to add Admiral Nelson that substance interest-spare 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 St. David Greising and Tomasz Janowski)