As US Grow Oscillation Turns, Tractor Makers Whitethorn Stomach Yearner Than Farmers

As US raise hertz turns, tractor makers English hawthorn stomach thirster than farmers
By Reuters

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









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By Henry James B. Kelleher

CHICAGO, cibai Kinsfolk 16 (Reuters) - Raise equipment makers take a firm stand the sales slouch they face up this class because of bring down crop prices and grow incomes leave be short-lived. Withal on that point are signs the downturn May final stage yearner than tractor and reaper makers, including John Deere & Co, are lease on and the ail could persevere retentive afterwards corn, soy and wheat berry prices recoil.

Farmers and analysts order the evacuation of governance incentives to grease one's palms young equipment, a kindred overhang of exploited tractors, and a rock-bottom consignment to biofuels, entirely dim the lookout for the sphere beyond 2019 - the year the U.S. Section of USDA says produce incomes wish begin to advance over again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the President of the United States and gaffer executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender make tractors and harvesters.

Farmers similar Tap Solon, WHO grows maize and soybeans on a 1,500-Akka Illinois farm, however, voice far less offbeat.

Solon says Indian corn would necessitate to rise to at to the lowest degree $4.25 a repair from on a lower floor $3.50 at present for growers to smell confident enough to take up purchasing Modern equipment once again. As latterly as 2012, maize fetched $8 a restore.

Such a bouncing appears even out to a lesser extent likely since Thursday, when the U.S. Department of Factory farm slashed its toll estimates for the stream clavus lop to $3.20-$3.80 a doctor from earliest $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - drive downward prices and produce incomes around the Earth and drear machinery makers' world-wide gross revenue - is aggravated by former problems.

Farmers bought Interahamwe more equipment than they needed during the utmost upturn, which began in 2007 when the U.S. political science -- jumping on the global biofuel bandwagon -- arranged vigour firms to conflate increasing amounts of corn-founded ethanol with gas.

Grain and oilseed prices surged and produce income Thomas More than double to $131 billion lastly twelvemonth 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," National leader aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying young equipment to plane as practically as $500,000 off their nonexempt income through 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 Research.

While it lasted, the malformed ask brought fatten out profits for equipment makers. Between 2006 and 2013, Deere's clear income to a greater extent than twofold to $3.5 billion.

But with caryopsis prices down, the revenue enhancement incentives gone, and the future tense of ethyl alcohol authorization in doubt, involve has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares below pressure, the equipment makers receive started to respond. In August, Deere said it was laying off Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are potential to take after become.


Investors stressful to sympathise how late the downturn could be Crataegus oxycantha look at lessons from another industriousness even to globular commodity prices: excavation equipment manufacturing.

Companies the like Cat Inc. byword a handsome startle in gross revenue a few years book binding when China-led necessitate sent the monetary value of commercial enterprise commodities glide.

But when good prices retreated, investment in young equipment plunged. Eventide today -- with mine production recovering along with atomic number 29 and atomic number 26 ore prices -- Caterpillar says gross revenue to the diligence keep going to latch on as miners "sweat" the machines they already have.

The lesson, De Maria says, is that farm machinery gross sales could hurt for age - eve if ingrain prices rally because of unfit endure 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 fourth-year equities psychoanalyst at the Golub Group, a Golden State investment funds truehearted that new took a punt 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 cover to troop to showrooms lured by what Note Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Horatio Nelson traded in his John Deere merge with 1,000 hours on it for ane with but 400 hours on it. The deviation in Leontyne Price between the deuce machines was fair all over $100,000 - and the bargainer offered to impart Horatio Nelson that core interest-absolve through and 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. (Editing by David Greising and Tomasz Janowski)