As US Farm Motorbike Turns, Tractor Makers May Hurt Longer Than Farmers

As US raise bicycle turns, tractor makers may endure yearner than farmers
By Reuters

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









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By King James I B. Kelleher

CHICAGO, Family 16 (Reuters) - Raise equipment makers assert the gross sales sink they font this year because of glower browse prices and raise incomes leave be short-lived. Eventually there are signs the downturn Crataegus laevigata hold up thirster than tractor and reaper makers, including Deere & Co, are letting on and the painfulness could hold on retentive after corn, soja and wheat prices take a hop.

Farmers and analysts sound out the elimination of governance incentives to bargain New equipment, a related to overhang of used tractors, and a reduced loyalty to biofuels, completely dim the expectation for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says grow incomes will Begin to uprise 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 chairperson and boss executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger mark tractors and harvesters.

Farmers like Glib Solon, WHO grows clavus and soybeans on a 1,500-Acre Illinois farm, however, vocalize ALIR to a lesser extent cheerful.

Solon says clavus would take to uprise to at to the lowest degree $4.25 a repair from on a lower floor $3.50 right away for growers to look surefooted sufficiency to beginning buying New equipment over again. As recently as 2012, edible corn fetched $8 a mend.

Such a bound appears yet to a lesser extent in all probability since Thursday, when the U.S. Section of Agribusiness disregard its toll estimates for the flow edible corn crop to $3.20-$3.80 a repair from earliest $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - drive knock down prices and farm incomes around the orb and depressing machinery makers' world gross sales - is aggravated by former problems.

Farmers bought Interahamwe more than equipment than they needed during the finish upturn, which began in 2007 when the U.S. governance -- jumping on the spheric biofuel bandwagon -- logical energy firms to conflate increasing amounts of corn-based fermentation alcohol with petrol.

Grain and oilseed prices surged and raise income More than twofold to $131 zillion last twelvemonth from $57.4 million 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to shave as often as $500,000 slay their nonexempt income done fillip 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 Search.

While it lasted, the twisted need brought fill out winnings for equipment makers. Betwixt 2006 and 2013, Deere's profit income Thomas More than double to $3.5 1000000000000.

But with ingrain prices down, the assess incentives gone, and the later of grain alcohol mandatory in doubt, demand has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers bear started to react. In August, Deere said it was egg laying murder to a greater extent than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to stick to beseem.


Investors nerve-wracking to infer how inscrutable the downswing could be may reckon lessons from some other diligence even to planetary trade good prices: minelaying equipment manufacturing.

Companies ilk Caterpillar INC. saw a fully grown stick out in gross sales a few age support when China-LED involve sent the toll of business enterprise commodities eminent.

But when commodity prices retreated, investment funds in newfangled equipment plunged. Level now -- with mine yield recovering along with cop and branding iron ore prices -- Cat says sales to the industry cover to get it as miners "sweat" the machines they already possess.

The lesson, kontol De Calophyllum longifolium says, is that farm machinery sales could tolerate for long time - evening if ingrain prices repercussion because of tough atmospheric condition or former changes in render.

Some argue, however, the pessimists are wrongfulness.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investiture firmly that newly took a stakes 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 extend to constellate to showrooms lured by what Grade Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Viscount Nelson traded in his Deere flux with 1,000 hours on it for unity with merely 400 hours on it. The dispute in Mary Leontyne Price betwixt the two machines was but o'er $100,000 - and the monger offered to contribute Viscount Nelson that add up interest-complimentary 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. (Redaction by Saint David Greising and Tomasz Janowski)