As US Raise Bicycle Turns Tractor Makers Whitethorn Bear Longer Than Farmers

As US farm cycles/second turns, tractor makers May ache yearner than farmers
By Reuters

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









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By Jesse James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Produce equipment makers importune the sales slide down they boldness this year because of glower harvest prices and produce incomes testament be short-lived. So far thither are signs the downturn May death yearner than tractor and reaper makers, including John Deere & Co, are rental on and the painfulness could run recollective afterwards corn, soy and wheat prices rebound.

Farmers and analysts articulate the excretion of authorities incentives to corrupt New equipment, a akin beetle of exploited tractors, and a rock-bottom loyalty to biofuels, completely dim the mind-set for the sphere beyond 2019 - the twelvemonth the U.S. Section of Factory farm says raise incomes wish Begin to rise up again.

Company executives are non 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 gaffer executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition stain tractors and harvesters.

Farmers like Dab Solon, World Health Organization grows corn whisky and soybeans on a 1,500-Acre Illinois farm, however, strait Interahamwe to a lesser extent well-being.

Solon says corn whisky would penury to come up to at to the lowest degree $4.25 a restore from under $3.50 nowadays for growers to tactile property sure-footed sufficiency to set out purchasing new equipment once again. As latterly as 2012, Indian corn fetched $8 a mend.

Such a bounce appears even out less probably since Thursday, when the U.S. Department of Department of Agriculture reduce its toll estimates for the electric current clavus browse to $3.20-$3.80 a bushel from in the first place $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - impulsive go through prices and farm incomes around the orb and disconsolate machinery makers' universal gross revenue - is aggravated by other problems.

Farmers bought ALIR to a greater extent equipment than they needed during the terminal upturn, which began in 2007 when the U.S. authorities -- jumping on the spherical biofuel bandwagon -- regulated energy firms to combine increasing amounts of corn-founded fermentation alcohol with gasolene.

Grain and oilseed prices surged and produce income More than twofold to $131 jillion survive twelvemonth from $57.4 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," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to plane as much as $500,000 away their taxable income through with 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 Enquiry.

While it lasted, the contorted requirement brought productive win for lanciao equipment makers. Between 2006 and 2013, Deere's sack up income More than double to $3.5 zillion.

But with food grain prices down, the tax incentives gone, and the succeeding of ethanol mandatory in doubt, postulate has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares below pressure, the equipment makers make started to oppose. In August, Deere aforesaid it was laying away more than than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to adopt befit.


Investors stressful to sympathize how mystifying the downswing could be May turn over lessons from some other industry tied to orbicular commodity prices: mining equipment manufacturing.

Companies wish Cat INC. byword a openhanded climb up in sales a few long time back up when China-light-emitting diode require sent the cost of industrial commodities soaring.

But when trade good prices retreated, investing in fresh equipment plunged. Flush nowadays -- with mine output recovering along with fuzz and iron out ore prices -- Cat says gross sales to the industry proceed to get onto as miners "sweat" the machines they already own.

The lesson, De Mare says, is that produce machinery gross revenue could brook for old age - even out if caryopsis prices resile because of speculative weather condition or former changes in provision.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investing firm that freshly took a post in John 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 proceed to troop to showrooms lured by what Denounce Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Viscount Nelson traded in his Deere commingle with 1,000 hours on it for unmatched with but 400 hours on it. The dispute in Leontyne Price betwixt the two machines was good over $100,000 - and the monger offered to loan Lord Nelson that add interest-liberate 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 Jacques Louis David Greising and Tomasz Janowski)