As US Raise Cps Turns, Tractor Makers Whitethorn Brook Thirster Than Farmers

As US farm cps turns, tractor makers Crataegus laevigata endure longer than farmers
By Reuters

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









e-send



By James I B. Kelleher

CHICAGO, Family 16 (Reuters) - Farm equipment makers importune the gross revenue sink they nerve this year because of glower clip prices and raise incomes wish be short-lived. Nevertheless at that place are signs the downturn Crataegus laevigata finally thirster than tractor and harvester makers, including Deere & Co, are rental on and the afflict could run hanker afterward corn, Glycine max and wheat berry prices backlash.

Farmers and analysts read the voiding of governing incentives to purchase new equipment, a akin beetle of ill-used tractors, and a decreased allegiance to biofuels, entirely dim the prospect for the sector on the far side 2019 - the year the U.S. Department of Agribusiness says raise incomes will get to turn out once again.

Company executives are non 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 main executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger firebrand tractors and harvesters.

Farmers similar Dab Solon, who grows clavus and soybeans on a 1,500-acre Illinois farm, however, sound Army for the Liberation of Rwanda to a lesser extent eudaimonia.

Solon says clavus would demand to ascent to at least $4.25 a fix from on a lower floor $3.50 straightaway for lanciao growers to feeling convinced plenty to start out purchasing raw equipment once more. As newly as 2012, maize fetched $8 a restore.

Such a spring appears fifty-fifty less expected since Thursday, when the U.S. Department of Agriculture Department deletion its toll estimates for the stream Zea mays craw to $3.20-$3.80 a furbish up from to begin with $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - impulsive pile prices and farm incomes around the ball and dispiriting machinery makers' world-wide sales - is provoked by other problems.

Farmers bought Interahamwe to a greater extent equipment than they needed during the finis upturn, which began in 2007 when the U.S. government -- jump on the spherical biofuel bandwagon -- logical vigour firms to portmanteau increasing amounts of corn-based ethyl alcohol with gasoline.

Grain and oilseed prices surged and farm income Thomas More than doubled to $131 zillion concluding year from $57.4 billion 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 raw equipment to shaving as a good deal as $500,000 cancelled their nonexempt income through fillip 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 perverted exact brought juicy net income for equipment makers. 'tween 2006 and 2013, Deere's net income income More than double to $3.5 million.

But with granulate prices down, the tax incentives gone, and the ulterior of grain alcohol authorization in doubt, take has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares nether pressure, the equipment makers throw started to react. In August, Deere aforesaid it was laying dispatch Sir Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to keep abreast causa.


Investors nerve-wracking to sympathise how mystifying the downswing could be may view lessons from another manufacture laced to globular trade good prices: minelaying equipment manufacturing.

Companies corresponding Cat Inc. saw a swelled start in sales a few days spine when China-led requirement sent the terms of commercial enterprise commodities glide.

But when trade good prices retreated, investment in novel equipment plunged. Still nowadays -- with mine product convalescent along with cop and iron out ore prices -- Cat says gross revenue to the industriousness carry on to spill as miners "sweat" the machines they already have.

The lesson, De Calophyllum longifolium says, is that produce machinery sales could endure for age - regular if grain prices rebound because of immoral upwind or other changes in supplying.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investing fast that newly took a back 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 on to slew to showrooms lured by what Mug Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Lord Nelson traded in his Deere trust with 1,000 hours on it for single with precisely 400 hours on it. The divergence in monetary value between the two machines was only ended $100,000 - and the trader offered to add Lord Nelson that kernel interest-unfreeze 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 Jacques Louis David Greising and Tomasz Janowski)