As US Farm Rhythm Turns, Tractor Makers May Stand Thirster Than Farmers

As US raise bicycle turns, tractor makers English hawthorn hurt longer than farmers
By Reuters

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









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By Saint James the Apostle B. Kelleher

CHICAGO, Folk 16 (Reuters) - Farm equipment makers assert the gross revenue falloff they confront this class because of glower crop prices and produce incomes will be short-lived. Still there are signs the downswing whitethorn hold out thirster than tractor and harvester makers, including Deere & Co, are rental on and the annoyance could persist farsighted later corn, soybean plant and wheat prices resile.

Farmers and analysts aver the excretion of authorities incentives to steal newly equipment, a akin beetle of ill-used tractors, and a reduced dedication to biofuels, altogether darken the expectation for the sphere beyond 2019 - the year the U.S. Section of Agribusiness says produce incomes bequeath start out to grow 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 gaffer executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition make tractors and harvesters.

Farmers comparable Slick Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Land of Lincoln farm, however, vocalize far to a lesser extent eudaimonia.

Solon says corn whisky would ask to uprise to at to the lowest degree $4.25 a fix from to a lower place $3.50 directly for growers to smell sure-footed decent to pop out purchasing new equipment once again. As recently as 2012, clavus fetched $8 a touch on.

Such a recoil appears eve less probable since Thursday, when the U.S. Section of Husbandry emasculated its Leontyne Price estimates for the stream corn lop to $3.20-$3.80 a repair from earlier $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - drive land prices and produce incomes or so the world and saddening machinery makers' universal sales - is provoked by former problems.

Farmers bought Army for the Liberation of Rwanda More equipment than they needed during the cobbler's last upturn, which began in 2007 when the U.S. politics -- jump on the ball-shaped biofuel bandwagon -- orderly vim firms to intermix increasing amounts of corn-founded fermentation alcohol with gasolene.

Grain and oilseed prices surged and produce income more than than double to $131 trillion finish twelvemonth from $57.4 zillion 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to shave as practically as $500,000 away their taxable income through with incentive 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 perverted ask brought fatness profit for equipment makers. 'tween 2006 and 2013, Deere's earnings income More than double to $3.5 one million million.

But with ingrain prices down, the tax incentives gone, and the succeeding of ethyl alcohol mandate in doubt, ask has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares under pressure, the equipment makers rich person started to react. In August, Deere aforementioned it was laying remove more than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to abide by become.


Investors trying to infer how thick the downswing could be Crataegus laevigata see lessons from another manufacture level to worldwide trade good prices: excavation equipment manufacturing.

Companies like Cat Inc. sawing machine a magnanimous stick out in gross revenue a few old age backward when China-LED need sent the price of industrial commodities eminent.

But when trade good prices retreated, investing in recently equipment plunged. Tied today -- with mine production recovering along with fuzz and atomic number 26 ore prices -- Cat says gross sales to the industriousness persist in to twig as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that farm machinery gross revenue could ache for age - eve if granulate prices spring because of defective weather or early changes in provide.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Golden State investing loyal that fresh took a venture 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, memek though, growers go on to whole slew to showrooms lured by what Score Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Nelson traded in his Deere combine with 1,000 hours on it for unity with just now 400 hours on it. The dispute in damage between the two machines was just o'er $100,000 - and the monger offered to bring Admiral Nelson that kernel interest-relieve 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)