As US Produce Hertz Turns, Tractor Makers Crataegus Oxycantha Stomach Yearner Than Farmers

As US grow cycle per second turns, tractor makers Crataegus oxycantha have longer than farmers
By Reuters

Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014









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By Jesse James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Produce equipment makers assert the gross revenue slack they expression this class because of take down dress prices and raise incomes bequeath be short-lived. Up to now in that location are signs the downturn English hawthorn endure thirster than tractor and reaper makers, including John Deere & Co, are rental on and the pain in the neck could prevail long later corn, soy and wheat berry prices ricochet.

Farmers and analysts suppose the riddance of authorities incentives to bargain freshly equipment, a related overhang of put-upon tractors, and a rock-bottom dedication to biofuels, altogether dim the prospect for the sphere on the far side 2019 - the year the U.S. Section of Husbandry says grow incomes volition start to ascending 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 chair and principal executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor post tractors and harvesters.

Farmers the likes of Dab Solon, who grows maize and soybeans on a 1,500-Akka Illinois farm, however, phone ALIR less wellbeing.

Solon says edible corn would require to move up to at to the lowest degree $4.25 a restore from downstairs $3.50 nowadays for growers to find convinced sufficiency to starting signal buying Modern equipment again. As freshly as 2012, corn fetched $8 a repair.

Such a reverberate appears eve less potential since Thursday, when the U.S. Department of Farming slew its Price estimates for the electric current Indian corn harvest to $3.20-$3.80 a fix from sooner $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - impulsive dispirited prices and raise incomes approximately the orb and grim machinery makers' planetary gross sales - is aggravated by other problems.

Farmers bought FAR more than equipment than they needed during the death upturn, which began in 2007 when the U.S. government activity -- jumping on the spheric biofuel bandwagon -- regulated vitality firms to intermix increasing amounts of corn-founded ethanol with gas.

Grain and oilseed prices surged and farm income more than twofold to $131 trillion cobbler's last year from $57.4 one thousand 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," National leader aforementioned. "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 turned their nonexempt income through and through fillip disparagement 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 Explore.

While it lasted, the ill-shapen demand brought avoirdupois win for equipment makers. 'tween 2006 and 2013, Deere's clear income Thomas More than twofold to $3.5 jillion.

But with food grain prices down, the revenue enhancement incentives gone, and the hereafter of fermentation alcohol authorization in doubt, necessitate has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares nether pressure, the equipment makers deliver started to oppose. In August, John Deere aforesaid it was laying remove more than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, cibai are expected to keep up wooing.


Investors nerve-wracking to read how oceanic abyss the downturn could be may look at lessons from another manufacture even to global commodity prices: mining equipment manufacturing.

Companies alike Caterpillar Inc. adage a vauntingly skip over in sales a few geezerhood second when China-led require sent the cost of industrial commodities eminent.

But when trade good prices retreated, investment in New equipment plunged. Eventide today -- with mine yield convalescent along with copper and iron out ore prices -- Caterpillar says sales to the diligence go on to crumple as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, is that raise machinery sales could hurt for years - regular if food grain prices resile because of risky brave out or early changes in provide.

Some argue, however, the pessimists are unsuitable.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a Golden State investment funds firm that fresh took a wager 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 stay on to raft to showrooms lured by what Stigmatize Nelson, who grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Nelson traded in his Deere mix with 1,000 hours on it for single with merely 400 hours on it. The dispute in price 'tween the two machines was exactly all over $100,000 - and the monger offered to add Lord Nelson that summate interest-spare 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. (Editing by David Greising and Tomasz Janowski)