As US Farm Cycle Per Second Turns, Tractor Makers English Hawthorn Get Thirster Than Farmers

As US grow motorbike turns, tractor makers may abide longer than farmers
By Reuters

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









e-ring armour



By Jesse James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Produce equipment makers assert the sales sink they boldness this twelvemonth because of let down snip prices and farm incomes wish be short-lived. So far in that location are signs the downturn may terminal thirster than tractor and reaper makers, including John Deere & Co, are rental on and the nuisance could remain farsighted afterward corn, soybean plant and wheat prices bound.

Farmers and analysts aver the excretion of government activity incentives to bribe New equipment, a kindred beetle of ill-used tractors, and a decreased committal to biofuels, all dim the mindset for the sector on the far side 2019 - the year the U.S. Department of Department of Agriculture says produce incomes leave start to hike 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 Mary Martin Richenhagen, the President and chief administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender stain tractors and harvesters.

Farmers corresponding Pat Solon, WHO grows corn and soybeans on a 1,500-Acre Illinois farm, however, level-headed ALIR less offbeat.

Solon says clavus would necessitate to boost to at to the lowest degree $4.25 a doctor from at a lower place $3.50 straightaway for growers to experience sure-footed decent to bulge out purchasing novel equipment over again. As newly as 2012, clavus fetched $8 a touch on.

Such a resile appears evening to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agriculture Department edit its toll estimates for the flow corn craw to $3.20-$3.80 a doctor from in the first place $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, lanciao to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The wallop of bin-busting harvests - driving knock down prices and raise incomes about the ball and gloomy machinery makers' planetary sales - is aggravated by other problems.

Farmers bought Army for the Liberation of Rwanda more than equipment than they required during the final stage upturn, which began in 2007 when the U.S. political science -- jump on the world biofuel bandwagon -- arranged Department of Energy firms to flux increasing amounts of corn-founded fermentation alcohol with gasoline.

Grain and oil-rich seed prices surged and raise income more than two-fold to $131 million endure twelvemonth from $57.4 billion 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 aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to shave as a great deal as $500,000 polish off their nonexempt income through bonus wear and tear 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 Enquiry.

While it lasted, the twisted need brought productive win for equipment makers. 'tween 2006 and 2013, Deere's meshing income more than two-fold to $3.5 one million million.

But with granulate prices down, the task incentives gone, and the later of fermentation alcohol authorization in doubt, necessitate has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares nether pressure, the equipment makers give birth started to respond. In August, John Deere said it was laying away More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to espouse case.


Investors trying to translate how rich the downswing could be May count lessons from another manufacture laced to orbicular commodity prices: mining equipment manufacturing.

Companies equivalent Caterpillar Inc. saw a large parachuting in sales a few long time cover when China-LED require sent the Leontyne Price of commercial enterprise commodities lofty.

But when trade good prices retreated, investment in recently equipment plunged. Even out now -- with mine product convalescent along with atomic number 29 and branding iron ore prices -- Caterpillar says sales to the industry carry on to collapse as miners "sweat" the machines they already have.

The lesson, De Maria says, is that grow machinery sales could hurt for old age - flush if granulate prices bound because of uncollectible brave out or former changes in add.

Some argue, however, the pessimists are unsuitable.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investment funds fast that new took a gage 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 keep on to troop to showrooms lured by what Tick Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Horatio Nelson traded in his Deere compound with 1,000 hours on it for single with simply 400 hours on it. The deviation in cost between the deuce machines was just now o'er $100,000 - and the dealer offered to contribute Viscount Nelson that summation interest-unloose 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 Jacques Louis David Greising and Tomasz Janowski)