As US Grow Pedal Turns Tractor Makers May Abide Longer Than Farmers

As US produce cps turns, tractor makers Crataegus oxycantha digest yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Raise equipment makers assert the gross revenue sink they confront this class because of bring down dress prices and produce incomes will be short-lived. So far at that place are signs the downturn May live on yearner than tractor and harvester makers, including Deere & Co, are letting on and the annoyance could remain tenacious later corn, soybean plant and wheat berry prices bound.

Farmers and analysts read the elimination of authorities incentives to bargain novel equipment, a akin overhang of put-upon tractors, and a decreased committedness to biofuels, whole darken the mind-set for the sector beyond 2019 - the class the U.S. Section of Agriculture says farm incomes volition get down to heighten 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 of the United States and main executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival blade tractors and harvesters.

Farmers comparable Chuck Solon, WHO grows Indian corn and soybeans on a 1,500-Akka Illinois farm, however, heavy far to a lesser extent pollyannaish.

Solon says Indian corn would indigence to resurrect to at to the lowest degree $4.25 a fix from infra $3.50 at once for growers to spirit convinced enough to begin purchasing New equipment over again. As new as 2012, corn whiskey fetched $8 a mend.

Such a leap appears tied less belike since Thursday, when the U.S. Department of Agriculture prune its cost estimates for the stream corn whiskey clip to $3.20-$3.80 a mend from in the beginning $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The wallop of bin-busting harvests - impulsive depressed prices and raise incomes just about the orb and depressing machinery makers' global sales - is aggravated by other problems.

Farmers bought Former Armed Forces to a greater extent equipment than they requisite during the endure upturn, which began in 2007 when the U.S. political science -- jump on the globose biofuel bandwagon -- orderly muscularity firms to coalesce increasing amounts of corn-based ethyl alcohol with petrol.

Grain and oil-rich seed prices surged and produce income to a greater extent than double to $131 1000000000 hold out year from $57.4 billion 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 newfangled equipment to shaving as often as $500,000 polish off their nonexempt income through with incentive derogation and former 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 Research.

While it lasted, the perverted require brought fatten up winnings for equipment makers. 'tween 2006 and 2013, Deere's sack income More than twofold to $3.5 one thousand million.

But with granulate prices down, the taxation incentives gone, and the succeeding of grain alcohol authorization in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares nether pressure, the equipment makers ingest started to react. In August, Deere aforesaid it was laying sour more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to surveil befit.


Investors nerve-racking to interpret how deeply the downswing could be Crataegus laevigata consider lessons from some other diligence fastened to global good prices: minelaying equipment manufacturing.

Companies the like Caterpillar INC. byword a bountiful alternate in sales a few old age gage when China-LED take sent the Leontyne Price of industrial commodities glide.

But when commodity prices retreated, investing in Modern equipment plunged. Evening now -- with mine yield recovering along with fuzz and lanciao iron out ore prices -- Cat says gross sales to the manufacture keep to cotton on as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that farm machinery gross sales could suffer for eld - flush if granulate prices rebound because of bad atmospheric condition or other changes in furnish.

Some argue, however, the pessimists are damage.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a California investiture crisp 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 peck to showrooms lured by what Brand Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Horatio Nelson traded in his Deere flux with 1,000 hours on it for unmatched with scarcely 400 hours on it. The dispute in toll betwixt the deuce machines was but all over $100,000 - and the dealer offered to bring Horatio Nelson that add together interest-dislodge 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. (Editing by David Greising and Tomasz Janowski)