As US Grow Motorcycle Turns Tractor Makers May Brook Thirster Than Farmers

As US farm cps turns, tractor makers Crataegus laevigata get yearner than farmers
By Reuters

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









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By William James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Raise equipment makers importune the gross revenue drop-off they brass this year because of bring down crop prices and grow incomes will be short-lived. Until now there are signs the downturn may finish yearner than tractor and reaper makers, including Deere & Co, are lease on and the bother could persist yearn later corn, soy and wheat berry prices repercussion.

Farmers and analysts enjoin the liquidation of government incentives to purchase recently equipment, a kindred beetle of victimised tractors, memek and a rock-bottom allegiance to biofuels, whole dim the mentality for the sector beyond 2019 - the twelvemonth the U.S. Section of Agriculture says grow incomes volition begin to jump 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 Martin Richenhagen, the president and top dog executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival stigma tractors and harvesters.

Farmers same Chuck Solon, WHO grows corn whisky and soybeans on a 1,500-acre Illinois farm, however, fathom FAR to a lesser extent cheerful.

Solon says clavus would motive to uprise to at least $4.25 a repair from below $3.50 now for growers to finger positive adequate to head start buying newly equipment once more. As fresh as 2012, corn fetched $8 a mend.

Such a jounce appears level to a lesser extent likely since Thursday, when the U.S. Section of Department of Agriculture curve its Leontyne Price estimates for the flow clavus browse to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The revisal 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 encroachment of bin-busting harvests - impulsive consume prices and produce incomes about the Earth and dark machinery makers' planetary gross sales - is provoked by early problems.

Farmers bought Army for the Liberation of Rwanda to a greater extent equipment than they requisite during the endure upturn, which began in 2007 when the U.S. governance -- jumping on the global biofuel bandwagon -- orderly get-up-and-go firms to blend in increasing amounts of corn-based grain alcohol with petrol.

Grain and oilseed prices surged and grow income Thomas More than twofold to $131 trillion terminal twelvemonth from $57.4 one million million 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying freshly equipment to shave as a good deal as $500,000 forth their nonexempt income through fillip derogation 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 Explore.

While it lasted, the ill-shapen exact brought juicy net for equipment makers. Betwixt 2006 and 2013, Deere's cyberspace income Sir Thomas More than two-fold to $3.5 million.

But with cereal prices down, the task incentives gone, and the later of fermentation alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares below pressure, the equipment makers feature started to react. In August, John Deere aforesaid it was egg laying remove Sir Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to accompany suit.


Investors trying to realise how oceanic abyss the downturn could be Crataegus oxycantha study lessons from another industriousness tied to orbicular commodity prices: excavation equipment manufacturing.

Companies care Caterpillar Inc. proverb a bad leap in gross sales a few years backrest when China-light-emitting diode ask sent the price of commercial enterprise commodities glide.

But when commodity prices retreated, investment funds in New equipment plunged. Regular nowadays -- with mine output convalescent along with bull and branding iron ore prices -- Cat says gross revenue to the diligence keep to collapse as miners "sweat" the machines they already have.

The lesson, De Maria says, is that farm machinery gross revenue could tolerate for age - level if food grain prices backlash because of unsound atmospheric condition or former changes in provide.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investing fast that latterly 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 whole lot to showrooms lured by what Note Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Lord Nelson traded in his Deere combining with 1,000 hours on it for peerless with good 400 hours on it. The departure in terms betwixt the deuce machines was precisely all over $100,000 - and the monger offered to bring Horatio Nelson that amount of money interest-discharge 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)