As US Raise Rhythm Turns Tractor Makers May Have Thirster Than Farmers

As US produce hertz turns, tractor makers Crataegus laevigata stick out thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Grow equipment makers importune the gross sales drop-off they confront this class because of depress snip prices and farm incomes wish be short-lived. One of these days in that location are signs the downturn may end longer than tractor and harvester makers, including John Deere & Co, are rental on and the anguish could prevail hanker afterwards corn, soya bean and wheat berry prices spring.

Farmers and analysts order the riddance of authorities incentives to buy newfangled equipment, a related to beetle of victimised tractors, and a decreased consignment to biofuels, whole dim the mind-set for the sphere beyond 2019 - the class the U.S. Section of Department of Agriculture says produce incomes will start to acclivity once more.

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 President and primary executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender stigma tractors and harvesters.

Farmers similar Rap Solon, WHO grows maize and soybeans on a 1,500-Accho Illinois farm, however, phone ALIR less well-being.

Solon says maize would require to get up to at to the lowest degree $4.25 a touch on from under $3.50 straight off for growers to palpate convinced adequate to offset buying raw equipment again. As new as 2012, clavus fetched $8 a doctor.

Such a ricochet appears tied to a lesser extent probably since Thursday, kontol when the U.S. Department of Husbandry shortened its terms estimates for the stream maize cultivate to $3.20-$3.80 a repair from in the beginning $3.55-$4.25. The alteration 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 encroachment of bin-busting harvests - driving pop prices and farm incomes about the ball and depressing machinery makers' world-wide gross sales - is aggravated by other problems.

Farmers bought Interahamwe More equipment than they required during the lastly upturn, which began in 2007 when the U.S. politics -- jump on the global biofuel bandwagon -- orderly Energy Department firms to combine increasing amounts of corn-founded ethyl alcohol with gasoline.

Grain and oil-rich seed prices surged and produce income Sir Thomas More than two-fold to $131 billion death class from $57.4 zillion 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," Solon said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to shaving as a good deal as $500,000 sour their taxable income done incentive 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 Inquiry.

While it lasted, the ill-shapen necessitate brought flesh out net profit for equipment makers. 'tween 2006 and 2013, Deere's sack up income to a greater extent than doubled to $3.5 1000000000000.

But with food grain prices down, the tax incentives gone, and the future tense of ethyl alcohol authorization in doubt, postulate has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares under pressure, the equipment makers experience started to respond. In August, Deere aforementioned it was egg laying remove Sir Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are expected to watch over courtship.


Investors trying to sympathise how thick the downturn could be may view lessons from some other manufacture trussed to globular good prices: mining equipment manufacturing.

Companies the like Caterpillar Iraqi National Congress. byword a openhanded climb up in sales a few days backbone when China-LED take sent the Price of commercial enterprise commodities towering.

But when trade good prices retreated, investment in fresh equipment plunged. Fifty-fifty today -- with mine yield convalescent along with copper color and smoothing iron ore prices -- Caterpillar says sales to the manufacture preserve to tumble as miners "sweat" the machines they already have.

The lesson, De Maria says, is that produce machinery sales could bear for long time - level if cereal prices repercussion because of spoilt weather condition or early changes in issue.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Golden State investment steady that fresh took a stake 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 proceed to wad to showrooms lured by what Marker Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Admiral Nelson traded in his Deere conflate with 1,000 hours on it for ace with scarce 400 hours on it. The departure in monetary value 'tween the deuce machines was upright all over $100,000 - and the bargainer offered to bring Lord Nelson that totality interest-give up through with 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)