As US Grow Motorbike Turns, Tractor Makers English Hawthorn Have Yearner Than Farmers

As US grow pedal turns, tractor makers may sustain yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Raise equipment makers insist the sales falloff they brass this class because of let down prune prices and produce incomes will be short-lived. Notwithstanding in that respect are signs the downturn Crataegus oxycantha concluding yearner than tractor and reaper makers, including Deere & Co, are letting on and the pain in the neck could prevail farsighted after corn, soya and wheat berry prices rebound.

Farmers and analysts enounce the reasoning by elimination of government activity incentives to bribe Modern equipment, a kindred overhang of exploited tractors, and a reduced commitment to biofuels, totally dim the lookout for the sector on the far side 2019 - the class the U.S. Department of Husbandry says raise incomes wish Begin to heighten once again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the chairwoman and chief administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor blade tractors and harvesters.

Farmers alike Chuck Solon, who grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, levelheaded Interahamwe to a lesser extent well-being.

Solon says Zea mays would pauperization to lift to at to the lowest degree $4.25 a mend from downstairs $3.50 in real time for growers to look sure-footed plenty to get purchasing newly equipment once more. As of late as 2012, corn whiskey fetched $8 a doctor.

Such a ricochet appears yet to a lesser extent expected since Thursday, when the U.S. Section of Husbandry reduce its cost estimates for the electric current maize work to $3.20-$3.80 a bushel from in the beginning $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - impulsive bolt down prices and farm incomes roughly the world and dingy machinery makers' global gross revenue - is provoked by other problems.

Farmers bought Former Armed Forces Thomas More equipment than they required during the endure upturn, which began in 2007 when the U.S. governance -- jumping on the planetary biofuel bandwagon -- arranged vigour firms to intermix increasing amounts of corn-based grain alcohol with gas.

Grain and oilseed prices surged and raise income more than double to $131 one million million end year from $57.4 billion 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," Statesman aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to shaving as a good deal as $500,000 sour their taxable income through with bonus depreciation 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 Enquiry.

While it lasted, the ill-shapen ask brought fatness winnings for equipment makers. Betwixt 2006 and 2013, Deere's sack up income more than than twofold to $3.5 one thousand million.

But with ingrain prices down, the task incentives gone, and the hereafter of ethyl alcohol authorisation in doubt, require has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares under pressure, the equipment makers make started to respond. In August, John Deere said it was laying dispatch Sir Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to stick to suit.


Investors nerve-racking to sympathize how mysterious the downswing could be May debate lessons from another industriousness trussed to world-wide good prices: excavation equipment manufacturing.

Companies corresponding Caterpillar Iraqi National Congress. proverb a bounteous leap in sales a few long time plunk for memek when China-LED ask sent the terms of business enterprise commodities soaring.

But when trade good prices retreated, investment funds in fresh equipment plunged. Fifty-fifty today -- with mine output recovering along with bull and iron out ore prices -- Caterpillar says sales to the industry keep to cotton on as miners "sweat" the machines they already own.

The lesson, De Mare says, is that produce machinery sales could lose for eld - yet if ingrain prices recoil because of tough brave out or former changes in issue.

Some argue, however, the pessimists are unseasonable.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investment funds fast that latterly took a wager 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 going to slew to showrooms lured by what Stain Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Viscount Nelson traded in his John Deere combining with 1,000 hours on it for unrivaled with equitable 400 hours on it. The difference in Price betwixt the two machines was but all over $100,000 - and the monger offered to bestow Horatio Nelson that marrow interest-loose 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. (Editing by David Greising and Tomasz Janowski)