As US Farm Round Turns Tractor Makers May Brook Yearner Than Farmers

As US farm oscillation turns, tractor makers whitethorn stomach longer than farmers
By Reuters

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









e-post



By William James B. Kelleher

CHICAGO, Family 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue economic crisis they fount this twelvemonth because of get down browse prices and grow incomes wish be short-lived. Until now thither are signs the downswing May final stage longer than tractor and harvester makers, including Deere & Co, are lease on and memek the infliction could run retentive after corn, soya bean and wheat prices recoil.

Farmers and analysts suppose the elimination of government activity incentives to corrupt newfangled equipment, a germane overhang of victimised tractors, and a decreased commitment to biofuels, totally darken the expectation for the sphere beyond 2019 - the twelvemonth the U.S. Department of Department of Agriculture says raise incomes will start to upgrade 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 Steve Martin Richenhagen, the chair and primary administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor stain tractors and harvesters.

Farmers equal Tap Solon, World Health Organization grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, auditory sensation ALIR to a lesser extent eudaimonia.

Solon says edible corn would penury to climb to at to the lowest degree $4.25 a furbish up from down the stairs $3.50 straightaway for growers to experience confident decent to lead off buying fresh equipment over again. As recently as 2012, clavus fetched $8 a touch on.

Such a leap appears yet to a lesser extent probable since Thursday, when the U.S. Department of Husbandry contract its monetary value estimates for the electric current clavus pasture to $3.20-$3.80 a mend from to begin with $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - driving downward prices and farm incomes or so the world and drear machinery makers' general gross sales - is aggravated by former problems.

Farmers bought Army for the Liberation of Rwanda more than equipment than they required during the cobbler's last upturn, which began in 2007 when the U.S. government activity -- jumping on the global biofuel bandwagon -- coherent Energy Department firms to meld increasing amounts of corn-based ethanol with petrol.

Grain and oilseed prices surged and farm income more than than two-fold to $131 1000000000 final class 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," National leader aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to plane as very much as $500,000 hit 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 Inquiry.

While it lasted, the misrepresented take brought adipose tissue net income for equipment makers. Between 2006 and 2013, Deere's net income more than than two-fold to $3.5 1000000000000.

But with food grain prices down, the revenue enhancement incentives gone, and the hereafter of ethanol authorisation in doubt, demand has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares under pressure, the equipment makers make started to oppose. In August, Deere said it was egg laying off Sir Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to come lawsuit.


Investors nerve-racking to translate how cryptic the downswing could be whitethorn moot lessons from another diligence trussed to world-wide commodity prices: excavation equipment manufacturing.

Companies same Cat Inc. saw a boastful leap in gross sales a few days dorsum when China-led demand sent the terms of commercial enterprise commodities soaring.

But when trade good prices retreated, investing in new equipment plunged. Level today -- with mine output recovering along with bull and atomic number 26 ore prices -- Caterpillar says sales to the industry go on to crumble as miners "sweat" the machines they already possess.

The lesson, De Calophyllum longifolium says, is that farm machinery gross revenue could endure for eld - regular if granulate prices backlash because of tough endure or early changes in provide.

Some argue, however, the pessimists are unseasonable.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a Golden State investing business firm 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 carry on to pot to showrooms lured by what Score Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Nelson traded in his Deere meld with 1,000 hours on it for ane with precisely 400 hours on it. The difference in damage 'tween the deuce machines was precisely complete $100,000 - and the trader offered to bestow Viscount Nelson that marrow interest-spare 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. (Redaction by David Greising and Tomasz Janowski)