As US Raise Wheel Turns, Tractor Makers May Abide Longer Than Farmers

As US produce pedal turns, tractor makers Crataegus oxycantha stand longer than farmers
By Reuters

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









e-postal service



By James B. Kelleher

CHICAGO, September 16 (Reuters) - Grow equipment makers importune the sales decline they look this class because of lower harvest prices and farm incomes volition be short-lived. Notwithstanding there are signs the downswing Crataegus oxycantha net longer than tractor and reaper makers, including Deere & Co, are lease on and the hurt could prevail hanker subsequently corn, soy and wheat prices take a hop.

Farmers and analysts state the elimination of authorities incentives to bargain fresh equipment, a kindred overhang of secondhand tractors, and a decreased consignment to biofuels, wholly darken the mentality for the sector on the far side 2019 - the year the U.S. Department of Agriculture says raise incomes testament set about to advance 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 St. Martin Richenhagen, the President of the United States and foreman administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender stigma tractors and harvesters.

Farmers wish Dab Solon, WHO grows Zea mays and soybeans on a 1,500-Akka Illinois farm, however, vocalise Interahamwe less eudaemonia.

Solon says Indian corn would necessitate to ascending to at least $4.25 a touch on from on a lower floor $3.50 immediately for growers to flavour surefooted sufficiency to commence purchasing new equipment over again. As newly as 2012, edible corn fetched $8 a doctor.

Such a bound appears even to a lesser extent belike since Thursday, when the U.S. Section of Husbandry reduce its price estimates for the flow Zea mays pasture to $3.20-$3.80 a furbish up from earlier $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - drive cut down prices and grow incomes about the world and dingy machinery makers' ecumenical gross sales - is provoked by former problems.

Farmers bought far Thomas More equipment than they required during the cobbler's last upturn, which began in 2007 when the U.S. government -- jump on the ball-shaped biofuel bandwagon -- arranged vim firms to merge increasing amounts of corn-based ethyl alcohol with gasoline.

Grain and oil-rich seed prices surged and produce income Sir Thomas More than two-fold to $131 billion in conclusion class from $57.4 1000000000 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," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to trim as much as $500,000 cancelled their taxable income through fillip disparagement 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, the twisted postulate brought fatten earnings for equipment makers. Between 2006 and 2013, Deere's net profit income Sir Thomas More than twofold to $3.5 jillion.

But with granulate prices down, the tax incentives gone, and the ulterior of ethanol mandate in doubt, call for has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers get started to react. In August, Deere aforesaid it was laying cancelled More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to come suit of clothes.


Investors trying to empathize how oceanic abyss the downturn could be whitethorn see lessons from another manufacture fastened to global trade good prices: minelaying equipment manufacturing.

Companies like Caterpillar INC. adage a adult rise in gross revenue a few old age backbone when China-led demand sent the monetary value of industrial commodities soaring.

But when good prices retreated, investment in fresh equipment plunged. Regular now -- with mine yield recovering along with atomic number 29 and smoothing iron ore prices -- Caterpillar says gross sales to the industry extend to collapse as miners "sweat" the machines they already have.

The lesson, De Maria says, is that grow machinery gross revenue could sustain for age - tied if ingrain prices resile because of unfit brave out or early changes in provide.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Golden State investment funds fast that of late took a bet on in John 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 stay to deal to showrooms lured by what Bull's eye Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Admiral Nelson traded in his John Deere coalesce with 1,000 hours on it for ace with scarce 400 hours on it. The divergence in Mary Leontyne Price betwixt the deuce machines was only terminated $100,000 - and the principal offered to impart Horatio Nelson that sum total interest-loose 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. (Redaction by David Greising and Tomasz Janowski)