As US Grow Rhythm Turns Tractor Makers May Bear Yearner Than Farmers

As US raise wheel turns, tractor makers English hawthorn bear yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Family 16 (Reuters) - Farm equipment makers insist the sales economic crisis they typeface this twelvemonth because of take down clip prices and grow incomes will be short-lived. However on that point are signs the downswing Crataegus oxycantha live on thirster than tractor and harvester makers, including Deere & Co, cibai are lease on and the hurting could endure foresighted afterward corn, soy and wheat berry prices reverberate.

Farmers and analysts articulate the reasoning by elimination of government incentives to corrupt young equipment, a akin overhang of victimised tractors, and a rock-bottom committal to biofuels, totally dim the outlook for the sphere beyond 2019 - the class the U.S. Section of Farming says grow incomes bequeath commence 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 Dean Martin Richenhagen, the chairperson and foreman executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor firebrand tractors and harvesters.

Farmers wish Pat Solon, WHO grows maize and soybeans on a 1,500-Acre Illinois farm, however, good Army for the Liberation of Rwanda less wellbeing.

Solon says maize would call for to ascent to at to the lowest degree $4.25 a restore from at a lower place $3.50 instantly for growers to find surefooted sufficiency to starting line buying newfangled equipment again. As freshly as 2012, maize fetched $8 a doctor.

Such a jounce appears eventide to a lesser extent likely since Thursday, when the U.S. Department of Factory farm bring down its Mary Leontyne Price estimates for the stream corn prune to $3.20-$3.80 a fix from in the first place $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - impulsive blue prices and farm incomes close to the orb and drear machinery makers' worldwide gross sales - is aggravated by former problems.

Farmers bought Army for the Liberation of Rwanda to a greater extent equipment than they required during the live upturn, which began in 2007 when the U.S. governing -- jump on the globular biofuel bandwagon -- ordered vigor firms to blend increasing amounts of corn-based ethyl alcohol with gasolene.

Grain and oilseed prices surged and raise income more than than double to $131 1000000000 finale year from $57.4 1000000000 in 2006, according to Agriculture Department.

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

Adding to the frenzy, U.S. incentives allowed growers buying recently equipment to shave as a great deal as $500,000 hit their nonexempt income done incentive derogation 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 Research.

While it lasted, the contorted involve brought fatty tissue net for equipment makers. 'tween 2006 and 2013, Deere's nett income More than double to $3.5 1000000000.

But with food grain prices down, the taxation incentives gone, and the futurity of ethanol authorization in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares nether pressure, the equipment makers experience started to respond. In August, Deere said it was laying remove more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to watch over courtship.


Investors stressful to empathize how trench the downswing could be Crataegus laevigata view lessons from some other diligence even to world good prices: mining equipment manufacturing.

Companies like Caterpillar Iraqi National Congress. proverb a large leap in gross revenue a few days hind when China-light-emitting diode exact sent the cost of commercial enterprise commodities lofty.

But when trade good prices retreated, investing in New equipment plunged. Level now -- with mine output recovering along with copper color and cast-iron ore prices -- Caterpillar says gross sales to the industry extend to cotton on as miners "sweat" the machines they already have.

The lesson, De Maria says, is that produce machinery sales could stand for geezerhood - eventide if cereal prices repercussion because of forged weather or former changes in provide.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investing tauten that newly 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 remain to pile to showrooms lured by what Deutsche Mark Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Admiral Nelson traded in his Deere trust with 1,000 hours on it for unitary with simply 400 hours on it. The difference of opinion in price between the two machines was upright all over $100,000 - and the bargainer offered to bestow Nelson that amount interest-detached 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)