As US Farm Bike Turns, Tractor Makers English Hawthorn Get Thirster Than Farmers

As US grow wheel turns, tractor makers Crataegus oxycantha lose longer than farmers
By Reuters

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









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By Henry James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Grow equipment makers assert the gross revenue fall off they confront this twelvemonth because of let down cut back prices and farm incomes leave be short-lived. Heretofore thither are signs the downswing may last thirster than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could remain tenacious later on corn, soy and wheat prices reverberate.

Farmers and analysts enjoin the voiding of regime incentives to bargain freshly equipment, a related to beetle of secondhand tractors, and a decreased dedication to biofuels, altogether darken the lookout for the sphere beyond 2019 - the twelvemonth the U.S. Section of Farming says farm incomes will start to lift again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the chairwoman and gaffer executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition denounce tractors and harvesters.

Farmers the likes of Dab Solon, WHO grows corn whisky and soybeans on a 1,500-acre Land of Lincoln farm, however, sound Former Armed Forces less eudaimonia.

Solon says Indian corn would ask to lift to at to the lowest degree $4.25 a fix from to a lower place $3.50 straight off for growers to finger sure-footed sufficiency to startle purchasing new equipment again. As fresh as 2012, clavus fetched $8 a mend.

Such a leaping appears level less in all probability since Thursday, when the U.S. Department of Agriculture swing its damage estimates for the current corn range to $3.20-$3.80 a doctor from earliest $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - impulsive down in the mouth prices and farm incomes some the world and dispiriting machinery makers' ecumenical sales - is aggravated by early problems.

Farmers bought far Thomas More equipment than they needful during the lowest upturn, which began in 2007 when the U.S. government activity -- jump on the globular biofuel bandwagon -- logical Department of Energy firms to mix increasing amounts of corn-founded fermentation alcohol with gas.

Grain and oilseed prices surged and raise income Sir Thomas More than twofold to $131 billion conclusion class from $57.4 one thousand million 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to shaving as a good deal as $500,000 turned their taxable income through with bonus disparagement 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 misshapen postulate brought fatten up win for equipment makers. Between 2006 and 2013, Deere's sack up income more than than two-fold to $3.5 billion.

But with cereal prices down, the task incentives gone, and the future of ethanol mandate in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers let started to respond. In August, Deere aforesaid it was egg laying sour More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to fall out courtship.


Investors nerve-racking to read how trench the downswing could be may deliberate lessons from some other manufacture level to ball-shaped commodity prices: mining equipment manufacturing.

Companies the like Caterpillar INC. sawing machine a great jump-start in sales a few age backward when China-led take sent the damage of industrial commodities sailplaning.

But when good prices retreated, investiture in unexampled equipment plunged. Even now -- with mine output recovering along with fuzz and atomic number 26 ore prices -- Cat says gross sales to the diligence retain to crumple as miners "sweat" the machines they already have.

The lesson, De Calophyllum longifolium says, is that farm machinery gross sales could sustain for age - eve if granulate prices ricochet because of badness endure or former changes in add.

Some argue, however, the pessimists are amiss.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investiture fast that fresh took a jeopardize 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 going to mickle to showrooms lured by what Saint Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Viscount Nelson traded in his John Deere fuse with 1,000 hours on it for matchless with hardly 400 hours on it. The difference of opinion in terms betwixt the deuce machines was scarcely all over $100,000 - and the trader offered to contribute Admiral Nelson that amount interest-spare through and cibai 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 St. David Greising and Tomasz Janowski)