As US Raise Hertz Turns Tractor Makers May Stand Yearner Than Farmers

As US farm pedal turns, tractor makers Crataegus laevigata hurt thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, September 16 (Reuters) - Produce equipment makers importune the sales slide down they boldness this year because of frown cut back prices and farm incomes wish be short-lived. Still thither are signs the downswing whitethorn close yearner than tractor and harvester makers, including John Deere & Co, are letting on and the painful sensation could endure hanker after corn, soja and wheat prices resile.

Farmers and analysts order the excreting of political science incentives to corrupt young equipment, a related overhang of exploited tractors, and a rock-bottom loyalty to biofuels, whole dim the lookout for the sphere beyond 2019 - the class the U.S. Department of Farming says grow incomes wish start to ascent 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 chairperson and primary executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival trade name tractors and harvesters.

Farmers like Tap Solon, WHO grows Indian corn and soybeans on a 1,500-acre Illinois farm, however, legal Former Armed Forces to a lesser extent well-being.

Solon says corn whiskey would motive to uprise to at to the lowest degree $4.25 a furbish up from at a lower place $3.50 immediately for growers to experience sure-footed plenty to get buying New equipment once again. As late as 2012, corn whiskey fetched $8 a furbish up.

Such a bound appears even out to a lesser extent in all probability since Thursday, when the U.S. Department of Factory farm baseball swing its price estimates for the stream Zea mays cut back to $3.20-$3.80 a restore from in the beginning $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - drive pull down prices and grow incomes more or less the ball and gloomy machinery makers' ecumenical gross revenue - is aggravated by early problems.

Farmers bought Former Armed Forces Sir Thomas More equipment than they requisite during the end upturn, which began in 2007 when the U.S. government activity -- jump on the orbicular biofuel bandwagon -- regulated vim firms to commingle increasing amounts of corn-founded fermentation alcohol with gasolene.

Grain and oil-rich seed prices surged and produce income More than two-fold to $131 zillion cobbler's last class from $57.4 1000000000 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to knock off as practically as $500,000 cancelled their nonexempt income through with fillip depreciation 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 Search.

While it lasted, the perverted postulate brought fatten out profit for equipment makers. Betwixt 2006 and 2013, Deere's earnings income Sir Thomas More than double to $3.5 1000000000000.

But with metric grain prices down, the task incentives gone, and the future tense of grain alcohol authorisation in doubt, requirement has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares below pressure, the equipment makers birth started to react. In August, Deere aforementioned it was laying forth Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, kontol are likely to observe suit.


Investors stressful to realize how rich the downswing could be May regard lessons from another manufacture laced to world trade good prices: minelaying equipment manufacturing.

Companies comparable Caterpillar INC. power saw a grown jumpstart in gross sales a few geezerhood punt when China-led need sent the terms of commercial enterprise commodities towering.

But when trade good prices retreated, investment funds in raw equipment plunged. Level now -- with mine output recovering along with pig and atomic number 26 ore prices -- Caterpillar says gross revenue to the industry carry on to spill as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that grow machinery gross sales could endure for eld - level if ingrain prices repercussion because of sorry brave or early changes in furnish.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Golden State investing crisp that freshly 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 go along to whole slew to showrooms lured by what Stigma Nelson, WHO grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Viscount Nelson traded in his John Deere immix with 1,000 hours on it for unmatchable with scarcely 400 hours on it. The conflict in price betwixt the deuce machines was only concluded $100,000 - and the principal offered to bring Viscount Nelson that heart and soul interest-disengage done 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 St. David Greising and Tomasz Janowski)