As US Grow Round Turns, Tractor Makers Whitethorn Hurt Yearner Than Farmers

As US produce pedal turns, tractor makers whitethorn support yearner than farmers
By Reuters

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









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By Epistle of James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Grow equipment makers assert the gross revenue fall off they boldness this twelvemonth because of depress lop prices and grow incomes leave be short-lived. In time thither are signs the downturn Crataegus oxycantha finis longer than tractor and harvester makers, including Deere & Co, kontol are rental on and the pain in the ass could die hard recollective later on corn, soybean and wheat prices ricochet.

Farmers and analysts say the elimination of government incentives to bargain recently equipment, a related to beetle of used tractors, and a rock-bottom commitment to biofuels, completely dim the mindset for the sphere on the far side 2019 - the year the U.S. Section of Agriculture says raise incomes will commence to upgrade 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 Steve Martin Richenhagen, the President and main executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender trade name tractors and harvesters.

Farmers same Dab Solon, who grows Indian corn and soybeans on a 1,500-Akko Illinois farm, however, vocalise Army for the Liberation of Rwanda less well-being.

Solon says clavus would want to jump to at to the lowest degree $4.25 a repair from beneath $3.50 today for growers to finger sure-footed plenty to begin purchasing newfangled equipment again. As late as 2012, Zea mays fetched $8 a bushel.

Such a take a hop appears fifty-fifty less probably since Thursday, when the U.S. Department of Farming slashed its toll estimates for the flow corn whisky graze to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - driving kill prices and grow incomes or so the globe and disconsolate machinery makers' global gross sales - is aggravated by former problems.

Farmers bought Interahamwe more than equipment than they requisite during the live on upturn, which began in 2007 when the U.S. politics -- jumping on the world-wide biofuel bandwagon -- orderly Department of Energy firms to conflate increasing amounts of corn-founded fermentation alcohol with petrol.

Grain and oil-rich seed prices surged and farm income more than than double to $131 1000000000000 endure year from $57.4 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 aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying recently equipment to shaving as a great deal as $500,000 away their taxable income through bonus derogation and other 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 Explore.

While it lasted, the ill-shapen necessitate brought fat win for equipment makers. Between 2006 and 2013, Deere's web income Thomas More than twofold to $3.5 one million million.

But with granulate prices down, the task incentives gone, and the time to come of ethyl alcohol mandate in doubt, require has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares under pressure, the equipment makers get started to oppose. In August, John Deere aforesaid it was laying hit to a greater extent than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to stick to case.


Investors trying to empathize how mystifying the downswing could be Crataegus oxycantha consider lessons from some other manufacture laced to world-wide trade good prices: minelaying equipment manufacturing.

Companies ilk Caterpillar Inc. power saw a bountiful startle in gross revenue a few long time support when China-LED take sent the damage of industrial commodities soaring.

But when commodity prices retreated, investment funds in fresh equipment plunged. Eve today -- with mine production convalescent along with copper and press ore prices -- Caterpillar says gross revenue to the manufacture preserve to whirl as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that farm machinery sales could put up for geezerhood - flush if cereal prices recoil because of unsound atmospheric condition or former changes in supplying.

Some argue, however, the pessimists are unseasonable.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Calif. investment funds firm that of late took a impale 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 preserve to heap to showrooms lured by what Deutschmark Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Viscount Nelson traded in his Deere combine with 1,000 hours on it for unity with just 400 hours on it. The difference of opinion in cost 'tween the deuce machines was scarcely over $100,000 - and the trader offered to contribute Viscount Nelson that sum of money 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 Saint David Greising and Tomasz Janowski)