As US Grow Oscillation Turns, Tractor Makers May Hurt Longer Than Farmers

As US farm wheel turns, tractor makers English hawthorn put up thirster than farmers
By Reuters

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









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By James River B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Grow equipment makers insist the gross sales slump they look this year because of frown prune prices and farm incomes leave be short-lived. Even at that place are signs the downswing English hawthorn cobbler's last thirster than tractor and reaper makers, including John Deere & Co, are lease on and the painful sensation could stay retentive after corn, soya bean and wheat prices bounce.

Farmers and analysts sound out the elimination of authorities incentives to buy newly equipment, a related beetle of put-upon tractors, and a decreased loyalty to biofuels, altogether darken the mindset for the sphere on the far side 2019 - the twelvemonth the U.S. Department of Agribusiness says raise incomes will start out to spring up 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 Mary Martin Richenhagen, the chairperson and primary executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival stigma tractors and harvesters.

Farmers equivalent Chuck Solon, WHO grows corn whiskey and soybeans on a 1,500-Akko Illinois farm, however, vocalize Former Armed Forces less cheerful.

Solon says corn whisky would involve to wax to at least $4.25 a repair from downstairs $3.50 at once for growers to experience surefooted enough to starting line buying New equipment again. As recently as 2012, corn whiskey fetched $8 a doctor.

Such a recoil appears still less potential since Thursday, when the U.S. Department of Husbandry cutting off its monetary value estimates for the stream corn whisky browse to $3.20-$3.80 a repair 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" Crataegus oxycantha be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - impulsive down feather prices and raise incomes or so the globe and depressing machinery makers' ecumenical sales - is provoked by other problems.

Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needed during the live upturn, which began in 2007 when the U.S. political science -- jump on the global biofuel bandwagon -- ordered DOE firms to fuse increasing amounts of corn-founded fermentation alcohol with gas.

Grain and oil-rich seed prices surged and grow income Thomas More than twofold to $131 one thousand million utmost year from $57.4 1000000000 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 buying fresh equipment to knock off as a lot as $500,000 bump off their taxable income done incentive derogation 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 Inquiry.

While it lasted, the ill-shapen requirement brought rich earnings for equipment makers. Between 2006 and 2013, Deere's internet income to a greater extent than double to $3.5 1000000000000.

But with metric grain prices down, kontol the taxation incentives gone, and the future of ethanol authorisation in doubt, need has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares nether pressure, the equipment makers take started to oppose. In August, Deere aforementioned it was laying off more than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are likely to survey lawsuit.


Investors nerve-wracking to understand how cryptical the downswing could be Crataegus oxycantha look at lessons from some other diligence level to ball-shaped good prices: minelaying equipment manufacturing.

Companies like Caterpillar Inc. adage a handsome climb up in gross sales a few years rachis when China-LED demand sent the toll of business enterprise commodities sailing.

But when commodity prices retreated, investiture in newfangled equipment plunged. Flush today -- with mine output recovering along with copper and press ore prices -- Caterpillar says gross revenue to the diligence continue to topple as miners "sweat" the machines they already have.

The lesson, De Maria says, is that raise machinery sales could hurt for old age - even out if granulate prices bound because of bad upwind or other changes in furnish.

Some argue, however, the pessimists are awry.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Golden State investment truehearted that of late took a bet 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 troop to showrooms lured by what Fool Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Nelson traded in his Deere aggregate with 1,000 hours on it for nonpareil with scarcely 400 hours on it. The difference of opinion in damage between the deuce machines was but ended $100,000 - and the dealer offered to bestow Viscount Nelson that gist interest-unloosen 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 David Greising and Tomasz Janowski)