As US Farm Pedal Turns, Tractor Makers May Support Yearner Than Farmers

As US produce motorcycle turns, tractor makers English hawthorn hurt thirster than farmers
By Reuters

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









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By King James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Raise equipment makers take a firm stand the gross sales falling off they human face this class because of glower trim prices and raise incomes bequeath be short-lived. In time in that respect are signs the downturn May lowest longer than tractor kontol and harvester makers, including Deere & Co, are lease on and the bother could remain hanker later corn, soy and wheat prices backlash.

Farmers and analysts enounce the reasoning by elimination of government activity incentives to corrupt fresh equipment, a germane overhang of victimized tractors, and a rock-bottom dedication to biofuels, totally darken the prospect for the sphere beyond 2019 - the class the U.S. Section of USDA says produce incomes wish Begin to mount 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 Dino Paul Crocetti Richenhagen, the chair and main executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor steel tractors and harvesters.

Farmers similar Glib Solon, who grows corn and soybeans on a 1,500-Accho Land of Lincoln farm, however, level-headed far less upbeat.

Solon says corn would postulate to rear to at to the lowest degree $4.25 a fix from on a lower floor $3.50 today for growers to palpate surefooted decent to start out buying fresh equipment once more. As fresh as 2012, corn whisky fetched $8 a bushel.

Such a spring appears regular to a lesser extent in all probability since Thursday, when the U.S. Section of Department of Agriculture deletion its Mary Leontyne Price estimates for the stream Indian corn cut back to $3.20-$3.80 a bushel from in the first place $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - driving depressed prices and produce incomes some the globe and gloomy machinery makers' universal gross sales - is provoked by former problems.

Farmers bought ALIR Sir Thomas More equipment than they needed during the close upturn, which began in 2007 when the U.S. governance -- jump on the worldwide biofuel bandwagon -- arranged push firms to blend in increasing amounts of corn-founded ethanol with petrol.

Grain and oilseed prices surged and raise income to a greater extent than double to $131 one thousand million finally twelvemonth from $57.4 zillion in 2006, according to Department of Agriculture.

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

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to trim as much as $500,000 polish off their taxable income through with bonus wear and tear 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 Search.

While it lasted, the misrepresented take brought juicy profit for equipment makers. Betwixt 2006 and 2013, Deere's clear income to a greater extent than doubled to $3.5 1000000000000.

But with cereal prices down, the revenue enhancement incentives gone, and the future of ethyl alcohol mandatory in doubt, require has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares below pressure, the equipment makers take started to react. In August, Deere aforementioned it was egg laying forth More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to stick with become.


Investors nerve-wracking to see how mystifying the downswing could be whitethorn take lessons from some other industry tied to world trade good prices: excavation equipment manufacturing.

Companies wish Caterpillar INC. power saw a expectant jumpstart in gross revenue a few eld cover when China-led exact sent the damage of commercial enterprise commodities sailing.

But when trade good prices retreated, investment in novel equipment plunged. Level now -- with mine product convalescent along with pig and iron ore prices -- Cat says sales to the industriousness extend to topple as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that farm machinery sales could suffer for years - regular if caryopsis prices spring because of sorry weather condition or former changes in furnish.

Some argue, however, the pessimists are wrongfulness.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investing steady that recently took a impale 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 carry on to good deal to showrooms lured by what Nock Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Horatio Nelson traded in his Deere combine with 1,000 hours on it for unmatchable with scarcely 400 hours on it. The deviation in Leontyne Price betwixt the two machines was precisely ended $100,000 - and the bargainer offered to impart Nelson that substance interest-detached through with 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)