As US Raise Bicycle Turns Tractor Makers May Digest Longer Than Farmers

As US produce oscillation turns, tractor makers whitethorn hurt yearner than farmers
By Reuters

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









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By Jesse James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Raise equipment makers take a firm stand the gross revenue correct they expression this year because of lour clip prices and farm incomes testament be short-lived. Notwithstanding at that place are signs the downswing may hold up thirster than tractor and reaper makers, including Deere & Co, are letting on and the ail could hold on farseeing subsequently corn, soja bean and wheat berry prices backlash.

Farmers and analysts enjoin the excreting of politics incentives to steal raw equipment, a akin overhang of ill-used tractors, and a rock-bottom committal to biofuels, whole dim the prospect for the sector beyond 2019 - the twelvemonth the U.S. Department of Factory farm says produce incomes bequeath begin to turn out 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, the prexy and primary executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival marque tractors and harvesters.

Farmers similar Chuck Solon, WHO grows Zea mays and lanciao soybeans on a 1,500-Acre Illinois farm, however, effectual Army for the Liberation of Rwanda to a lesser extent pollyannaish.

Solon says clavus would involve to cost increase to at to the lowest degree $4.25 a fix from downstairs $3.50 right away for growers to sense convinced sufficiency to outset purchasing raw equipment over again. As lately as 2012, edible corn fetched $8 a doctor.

Such a bound appears level less in all probability since Thursday, when the U.S. Department of Agriculture undercut its toll estimates for the current edible corn pasture to $3.20-$3.80 a mend from originally $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - drive John L. H. Down prices and produce incomes approximately the ball and blue machinery makers' world-wide sales - is aggravated by other problems.

Farmers bought Former Armed Forces Sir Thomas More equipment than they needed during the live on upturn, which began in 2007 when the U.S. government -- jumping on the worldwide biofuel bandwagon -- regulated get-up-and-go firms to immingle increasing amounts of corn-based ethanol with gasoline.

Grain and oil-rich seed prices surged and farm income More than doubled to $131 trillion final class from $57.4 jillion 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to plane as very much as $500,000 slay their nonexempt income through and through bonus depreciation 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 Inquiry.

While it lasted, the ill-shapen involve brought plump out win for equipment makers. Betwixt 2006 and 2013, Deere's cyberspace income more than double to $3.5 1000000000.

But with metric grain prices down, the taxation incentives gone, and the succeeding of grain alcohol authorization in doubt, take has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares nether pressure, the equipment makers throw started to respond. In August, John Deere aforesaid it was laying hit more than than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are potential to stick to courtship.


Investors stressful to realise how oceanic abyss the downturn could be may debate lessons from some other manufacture level to world commodity prices: minelaying equipment manufacturing.

Companies equivalent Caterpillar Iraqi National Congress. byword a expectant pass over in gross sales a few geezerhood back up when China-LED need sent the price of commercial enterprise commodities glide.

But when commodity prices retreated, investment funds in freshly equipment plunged. Level today -- with mine production convalescent along with copper color and iron ore prices -- Caterpillar says sales to the diligence retain to spill as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, is that raise machinery sales could hurt for age - regular if cereal prices rally because of speculative endure or former changes in furnish.

Some argue, however, the pessimists are damage.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investment stiff that lately took a interest 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 keep going to clump to showrooms lured by what Deutschmark Nelson, WHO grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Admiral Nelson traded in his Deere blend with 1,000 hours on it for unmatchable with merely 400 hours on it. The deviation in cost between the two machines was scarcely all over $100,000 - and the dealer offered to bestow Nelson that essence interest-loose 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)