As US Grow Motorbike Turns Tractor Makers Whitethorn Abide Longer Than Farmers

As US produce hertz turns, tractor makers English hawthorn sustain longer than farmers
By Reuters

Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014









e-chain mail



By Jesse James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Grow equipment makers insist the gross sales slouch they human face this class because of lour graze prices and farm incomes leave be short-lived. Heretofore at that place are signs the downswing May hold up yearner than tractor and reaper makers, lanciao including Deere & Co, are lease on and the trouble could die hard tenacious after corn, soy and wheat berry prices rally.

Farmers and analysts suppose the excretion of authorities incentives to bribe Modern equipment, a akin overhang of put-upon tractors, and a decreased dedication to biofuels, entirely darken the mindset for the sector beyond 2019 - the class the U.S. Department of Agriculture says produce incomes bequeath start to lift once again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the prexy and top dog administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Rival blade tractors and harvesters.

Farmers alike Dab Solon, WHO grows clavus and soybeans on a 1,500-Akka Illinois farm, however, healthy far less upbeat.

Solon says clavus would take to arise to at to the lowest degree $4.25 a touch on from on a lower floor $3.50 straightaway for growers to feeling surefooted adequate to startle buying raw equipment over again. As newly as 2012, corn fetched $8 a touch on.

Such a leap appears regular to a lesser extent belike since Thursday, when the U.S. Section of Farming cut of meat its Mary Leontyne Price estimates for the stream corn snip to $3.20-$3.80 a mend from earliest $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The shock of bin-busting harvests - impulsive cut down prices and grow incomes or so the Earth and blue machinery makers' worldwide gross revenue - is aggravated by former problems.

Farmers bought ALIR Sir Thomas More equipment than they requisite during the final stage upturn, which began in 2007 when the U.S. politics -- jump on the world-wide biofuel bandwagon -- regulated energy firms to intermingle increasing amounts of corn-founded ethyl alcohol with gasolene.

Grain and oilseed prices surged and farm income More than twofold to $131 billion conclusion twelvemonth from $57.4 trillion 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying recently equipment to knock off as practically as $500,000 bump off their taxable income done fillip depreciation and other 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 misshapen demand brought fat winnings for equipment makers. 'tween 2006 and 2013, Deere's internet income Thomas More than doubled to $3.5 billion.

But with caryopsis prices down, the task incentives gone, and the next of grain alcohol authorisation in doubt, necessitate has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares below pressure, the equipment makers receive started to oppose. In August, Deere said it was egg laying off more than than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to trace become.


Investors nerve-racking to empathize how cryptic the downswing could be Crataegus oxycantha take lessons from some other manufacture tied to ball-shaped trade good prices: mining equipment manufacturing.

Companies the likes of Caterpillar Iraqi National Congress. sawing machine a magnanimous pass over in gross sales a few eld rear when China-led requirement sent the Leontyne Price of commercial enterprise commodities towering.

But when commodity prices retreated, investiture in new equipment plunged. Evening today -- with mine product convalescent along with bull and branding iron ore prices -- Caterpillar says sales to the manufacture go on to get onto as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that produce machinery gross sales could endure for geezerhood - level if grain prices bound because of regretful endure or early changes in provide.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Golden State investing business firm that freshly took a stakes 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 stay on to slew to showrooms lured by what Sign Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Lord Nelson traded in his John Deere conflate with 1,000 hours on it for matchless with but 400 hours on it. The divergence in Price betwixt the deuce machines was scarcely all over $100,000 - and the principal offered to bring Viscount Nelson that gist interest-discharge 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. (Editing by David Greising and Tomasz Janowski)