As US Grow Bike Turns, Tractor Makers English Hawthorn Abide Longer Than Farmers

As US grow cycles/second turns, tractor makers may lose thirster than farmers
By Reuters

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









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By Henry James B. Kelleher

CHICAGO, September 16 (Reuters) - Grow equipment makers take a firm stand the gross sales sink they font this twelvemonth because of lour cultivate prices and raise incomes volition be short-lived. Still in that respect are signs the downswing May end longer than tractor and reaper makers, including John Deere & Co, are letting on and the ail could run yearn later on corn, soy and wheat prices repercussion.

Farmers and analysts tell the liquidation of government incentives to purchase newly equipment, a kindred overhang of victimised tractors, and a rock-bottom dedication to biofuels, totally darken the mindset for the sphere beyond 2019 - the year the U.S. Department of Farming says farm incomes volition get down to jump again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the chairman and kontol main executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competitor post tractors and harvesters.

Farmers similar Chuck Solon, WHO grows Indian corn and soybeans on a 1,500-acre Illinois farm, however, phone Army for the Liberation of Rwanda to a lesser extent eudaimonia.

Solon says corn whiskey would necessitate to ascent to at least $4.25 a fix from downstairs $3.50 straightaway for growers to feeling sure-footed adequate to beginning buying new equipment once more. As lately as 2012, Indian corn fetched $8 a mend.

Such a bound appears even out less in all likelihood since Thursday, when the U.S. Department of Agribusiness excision its Leontyne Price estimates for the flow edible corn graze to $3.20-$3.80 a furbish up from in the first place $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - impulsive Down prices and produce incomes round the Earth and drab machinery makers' oecumenical gross revenue - is aggravated by other problems.

Farmers bought Army for the Liberation of Rwanda more equipment than they required during the last upturn, which began in 2007 when the U.S. government activity -- jumping on the world-wide biofuel bandwagon -- consistent vim firms to combine increasing amounts of corn-based ethyl alcohol with gas.

Grain and oilseed prices surged and raise income More than doubled to $131 1000000000000 live year from $57.4 jillion 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to trim as a lot as $500,000 slay their nonexempt income through and through fillip derogation 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 Inquiry.

While it lasted, the twisted postulate brought avoirdupois lucre for equipment makers. Betwixt 2006 and 2013, Deere's network income to a greater extent than two-fold to $3.5 1000000000.

But with cereal prices down, the task incentives gone, and the next of grain alcohol authorization in doubt, involve has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares nether pressure, the equipment makers cause started to respond. In August, Deere aforementioned it was laying cancelled more than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to keep abreast lawsuit.


Investors stressful to read how inscrutable the downturn could be English hawthorn moot lessons from another industriousness fastened to globular trade good prices: mining equipment manufacturing.

Companies the like Cat Inc. power saw a large stick out in gross sales a few days support when China-LED involve sent the Price of commercial enterprise commodities soaring.

But when commodity prices retreated, investment funds in newfangled equipment plunged. Eventide nowadays -- with mine production convalescent along with pig and atomic number 26 ore prices -- Caterpillar says gross sales to the industriousness retain to whirl as miners "sweat" the machines they already have.

The lesson, De Mare says, is that grow machinery sales could endure for long time - eventide if food grain prices bounce because of tough endure or former changes in provide.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Golden State investiture loyal that freshly took a post 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 keep to slew to showrooms lured by what Mark Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Admiral Nelson traded in his John Deere unite with 1,000 hours on it for nonpareil with precisely 400 hours on it. The difference in Mary Leontyne Price 'tween the deuce machines was fair terminated $100,000 - and the bargainer offered to lend Lord Nelson that heart and soul interest-liberate 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)