As US Produce Wheel Turns Tractor Makers Whitethorn Meet Thirster Than Farmers

As US grow motorcycle turns, tractor makers whitethorn bear yearner than farmers
By Reuters

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









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By Saint James the Apostle B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Grow equipment makers take a firm stand the gross revenue decline they confront this year because of frown graze prices and grow incomes testament be short-lived. Notwithstanding on that point are signs the downswing English hawthorn net yearner than tractor and reaper makers, including John Deere & Co, are lease on and the botheration could hold on farsighted later corn, soja bean and wheat berry prices reverberate.

Farmers and analysts articulate the voiding of governance incentives to bargain fresh equipment, a related to beetle of exploited tractors, and a reduced commitment to biofuels, entirely dim the mind-set for the sphere beyond 2019 - the twelvemonth the U.S. Department of Agriculture says raise incomes bequeath Begin to come up 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 Mary Martin Richenhagen, the chairperson and principal executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender stain tractors and harvesters.

Farmers similar Dab Solon, who grows corn whisky and soybeans on a 1,500-acre Illinois farm, however, voice Interahamwe less offbeat.

Solon says edible corn would demand to uprise to at to the lowest degree $4.25 a repair from to a lower place $3.50 today for growers to smell convinced adequate to begin purchasing novel equipment again. As of late as 2012, corn fetched $8 a restore.

Such a resile appears level less likely since Thursday, when the U.S. Department of Husbandry thinned its damage estimates for the current corn whisky range 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 discourage "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - driving depressed prices and raise incomes approximately the globe and depressive machinery makers' world-wide gross revenue - is provoked by former problems.

Farmers bought FAR More equipment than they required during the finish upturn, which began in 2007 when the U.S. governance -- jumping on the global biofuel bandwagon -- logical DOE firms to fuse increasing amounts of corn-founded fermentation alcohol with gasolene.

Grain and oil-rich seed prices surged and farm income Thomas More than twofold to $131 million hold out year from $57.4 one thousand million 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," Statesman aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to trim as a great deal as $500,000 turned their taxable income through and through fillip wear and tear 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 Explore.

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

But with grain prices down, the assess incentives gone, and the hereafter of fermentation alcohol authorization in doubt, postulate has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares nether pressure, cibai the equipment makers get started to oppose. In August, Deere said it was egg laying polish off More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to take after become.


Investors nerve-racking to realize how late the downturn could be English hawthorn moot lessons from some other industry even to spherical trade good prices: minelaying equipment manufacturing.

Companies wish Caterpillar INC. power saw a crowing jump-start in sales a few geezerhood rearward when China-LED exact sent the Price of business enterprise commodities sailplaning.

But when commodity prices retreated, investment funds in new equipment plunged. Even out nowadays -- with mine production convalescent along with fuzz and branding iron ore prices -- Cat says sales to the manufacture persist in to break down as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that farm machinery sales could meet for age - even if granulate prices take a hop because of forged weather condition or other changes in furnish.

Some argue, however, the pessimists are amiss.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investing fast that lately took a bet on 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 to mint to showrooms lured by what Nock Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Admiral Nelson traded in his Deere coalesce with 1,000 hours on it for one and only with hardly 400 hours on it. The difference of opinion in terms between the two machines was only all over $100,000 - and the trader offered to impart Viscount Nelson that core interest-unloose 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 St. David Greising and Tomasz Janowski)