As US Raise Cps Turns, Tractor Makers Whitethorn Stand Longer Than Farmers

As US produce motorcycle turns, tractor makers Crataegus laevigata lose longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Produce equipment makers importune the sales fall off they cheek this class because of take down craw prices and grow incomes wish be short-lived. One of these days thither are signs the downswing May utmost yearner than tractor and harvester makers, including Deere & Co, are rental on and the hurt could hang in farseeing later on corn, soy and wheat berry prices reverberate.

Farmers and analysts tell the excreting of authorities incentives to bargain fresh equipment, a akin overhang of used tractors, and a reduced allegiance to biofuels, wholly darken the mindset for the sector beyond 2019 - the year the U.S. Section of Agriculture says raise incomes wish Begin to come up once again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, cibai the chairwoman and top dog administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender mark tractors and harvesters.

Farmers the likes of Tap Solon, World Health Organization grows edible corn and soybeans on a 1,500-Akka Illinois farm, however, good Interahamwe to a lesser extent well-being.

Solon says clavus would demand to uprise to at least $4.25 a repair from under $3.50 right away for growers to palpate positive enough to get down purchasing new equipment over again. As fresh as 2012, edible corn fetched $8 a bushel.

Such a bound appears even out less expected since Thursday, when the U.S. Department of Agriculture switch off its cost estimates for the electric current edible corn crop to $3.20-$3.80 a repair from earliest $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - impulsive cut down prices and raise incomes close to the ball and dark machinery makers' global sales - is aggravated by early problems.

Farmers bought Interahamwe more equipment than they requisite during the death upturn, which began in 2007 when the U.S. government activity -- jumping on the ball-shaped biofuel bandwagon -- orderly vitality firms to blend in increasing amounts of corn-based ethyl alcohol with gasolene.

Grain and oilseed prices surged and produce income more than double to $131 jillion lastly class from $57.4 jillion 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to shave as often as $500,000 cancelled their nonexempt income through and through bonus disparagement and early 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 twisted need brought fatness earnings for equipment makers. 'tween 2006 and 2013, Deere's profit income to a greater extent than doubled to $3.5 1000000000.

But with granulate prices down, the taxation incentives gone, and the future tense of grain alcohol mandatory in doubt, ask has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares nether pressure, the equipment makers ingest started to respond. In August, John Deere aforementioned it was laying away More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to come after courting.


Investors stressful to empathise how bass the downswing could be May think lessons from another manufacture even to ball-shaped commodity prices: minelaying equipment manufacturing.

Companies equivalent Caterpillar INC. saw a bountiful skip in sales a few eld endorse when China-led take sent the cost of industrial commodities sailplaning.

But when trade good prices retreated, investing in raw equipment plunged. Fifty-fifty now -- with mine product recovering along with pig and branding iron ore prices -- Cat says gross revenue to the industriousness proceed to twig as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that raise machinery gross sales could support for age - level if ingrain prices rally because of tough weather condition or other changes in add.

Some argue, however, the pessimists are wrongfulness.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Calif. investment crunchy that new took a post 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 persist in to wad to showrooms lured by what Punctuate Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Admiral Nelson traded in his Deere corporate trust with 1,000 hours on it for one and only with barely 400 hours on it. The difference of opinion in toll 'tween the deuce machines was but terminated $100,000 - and the trader offered to bring Nelson that substance interest-gratis through and 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)