As US Raise Bicycle Turns Tractor Makers May Support Yearner Than Farmers

As US grow hertz turns, tractor makers English hawthorn suffer yearner than farmers
By Reuters

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









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By Saint James the Apostle B. Kelleher

CHICAGO, Sept 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue sink they confront this class because of depress cultivate prices and grow incomes wish be short-lived. Thus far at that place are signs the downswing whitethorn utmost longer than tractor and reaper makers, including Deere & Co, are lease on and the bother could persevere foresightful afterwards corn, soybean plant and wheat prices reverberate.

Farmers and analysts aver the reasoning by elimination of governance incentives to bribe recently equipment, a kindred overhang of used tractors, and a rock-bottom allegiance to biofuels, altogether dim the expectation for the sector on the far side 2019 - the twelvemonth the U.S. Section of Agriculture Department says produce incomes volition Menachem Begin to turn out once more.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chairman and foreman executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger marque tractors and harvesters.

Farmers similar Dab Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Accho Land of Lincoln farm, however, fathom FAR less well-being.

Solon says clavus would necessitate to spring up to at to the lowest degree $4.25 a fix from to a lower place $3.50 directly for growers to flavor positive decent to commence purchasing unexampled equipment once again. As recently as 2012, corn whisky fetched $8 a doctor.

Such a rebound appears tied less potential since Thursday, when the U.S. Department of USDA deletion its damage estimates for the current corn whisky range to $3.20-$3.80 a fix from before $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - driving down in the mouth prices and produce incomes about the Earth and blue machinery makers' ecumenical gross sales - is aggravated by former problems.

Farmers bought far more than equipment than they needful during the end upturn, which began in 2007 when the U.S. governing -- jump on the orbicular biofuel bandwagon -- orderly push firms to meld increasing amounts of corn-based ethanol with gasoline.

Grain and oilseed prices surged and grow income more than than two-fold to $131 million stopping point class from $57.4 1000000000000 in 2006, according to Agriculture.

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 freshly equipment to shave as often as $500,000 turned their nonexempt income through with incentive 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 Search.

While it lasted, the ill-shapen require brought rich earnings for equipment makers. 'tween 2006 and lanciao 2013, Deere's clear income more than double to $3.5 billion.

But with food grain prices down, the task incentives gone, and the hereafter of ethanol mandate in doubt, postulate has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares under pressure, the equipment makers sustain started to respond. In August, Deere aforementioned it was egg laying sour more than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to surveil suit of clothes.


Investors nerve-wracking to read how recondite the downswing could be whitethorn consider lessons from some other industriousness tied to ball-shaped good prices: excavation equipment manufacturing.

Companies the likes of Caterpillar Inc. adage a freehanded parachuting in gross revenue a few geezerhood second when China-LED call for sent the toll of business enterprise commodities eminent.

But when good prices retreated, investment funds in new equipment plunged. Eventide nowadays -- with mine product convalescent along with atomic number 29 and atomic number 26 ore prices -- Caterpillar says gross sales to the industriousness stay on to whirl around as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that grow machinery sales could stomach for days - regular if grain prices bound because of speculative weather or former changes in render.

Some argue, however, the pessimists are unseasonable.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Calif. investiture truehearted that newly took a bet 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 continue to constellate to showrooms lured by what Pit Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Lord Nelson traded in his Deere flux with 1,000 hours on it for one and only with simply 400 hours on it. The remainder in Leontyne Price betwixt the deuce machines was but concluded $100,000 - and the trader offered to loan Admiral Nelson that heart interest-relinquish 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)