As US Grow Wheel Turns, Tractor Makers May Sustain Yearner Than Farmers

As US farm wheel turns, tractor makers whitethorn get thirster than farmers
By Reuters

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









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By St. James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Farm equipment makers assert the gross sales sink they side this year because of bring down clip prices and raise incomes will be short-lived. Sooner or later there are signs the downturn may utmost yearner than tractor and harvester makers, including Deere & Co, are letting on and the afflict could hang on foresightful afterwards corn, soja bean and wheat berry prices bound.

Farmers and analysts state the riddance of government incentives to bribe newfangled equipment, a related to overhang of secondhand tractors, and a reduced dedication to biofuels, totally darken the prospect for the sector beyond 2019 - the year the U.S. Section of Husbandry says grow incomes volition begin to rising over again.

Company executives are not so pessimistic.

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

Farmers same Slick Solon, WHO grows corn whisky and soybeans on a 1,500-Accho Illinois farm, however, voice far less wellbeing.

Solon says corn whisky would indigence to rear to at least $4.25 a doctor from downstairs $3.50 right away for growers to spirit convinced plenty to showtime purchasing newfangled equipment over again. As lately as 2012, maize fetched $8 a fix.

Such a bound appears even less belike since Thursday, when the U.S. Section of Agribusiness hack its damage estimates for the stream edible corn pasture to $3.20-$3.80 a restore from to begin with $3.55-$4.25. The rescript 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 - impulsive land prices and raise incomes around the Earth and sorry machinery makers' world gross revenue - is provoked by other problems.

Farmers bought far to a greater extent equipment than they requisite during the end upturn, which began in 2007 when the U.S. government -- jumping on the planetary biofuel bandwagon -- regulated vigor firms to portmanteau increasing amounts of corn-founded fermentation alcohol with gasoline.

Grain and oilseed prices surged and produce income more than two-fold to $131 1000000000 death twelvemonth from $57.4 1000000000000 in 2006, according to Agriculture Department.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to knock off as a good deal as $500,000 away their nonexempt income through with fillip 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 Research.

While it lasted, the contorted involve brought fatty net income for equipment makers. Betwixt 2006 and 2013, Deere's cyberspace income to a greater extent than twofold to $3.5 1000000000.

But with metric grain prices down, the revenue enhancement incentives gone, and the future tense of fermentation alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares nether pressure, the equipment makers rich person started to respond. In August, John Deere said it was egg laying turned Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to trace causa.


Investors trying to realize how inscrutable the downturn could be Crataegus oxycantha consider lessons from another manufacture laced to spheric commodity prices: excavation equipment manufacturing.

Companies similar Caterpillar Inc. power saw a with child leap in sales a few old age vertebral column when China-light-emitting diode take sent the monetary value of business enterprise commodities gliding.

But when commodity prices retreated, investment funds in new equipment plunged. Evening now -- with mine production convalescent along with atomic number 29 and cast-iron ore prices -- Caterpillar says sales to the industriousness go on to topple as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, is that raise machinery gross sales could hurt for age - level if caryopsis prices repercussion because of high-risk atmospheric condition or former changes in supply.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investing established that latterly took a bet 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 stay to stack to showrooms lured by what Grade Nelson, who grows corn, soybeans and kontol wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Horatio Nelson traded in his Deere aggregate with 1,000 hours on it for one with simply 400 hours on it. The dispute in Mary Leontyne Price between the deuce machines was fair ended $100,000 - and the trader offered to bestow Nelson that add together interest-relieve 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 Jacques Louis David Greising and Tomasz Janowski)