As US Raise Oscillation Turns Tractor Makers May Tolerate Longer Than Farmers

As US grow motorbike turns, tractor makers May meet thirster than farmers
By Reuters

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









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By James I B. Kelleher

CHICAGO, Sept 16 (Reuters) - Grow equipment makers take a firm stand the sales sink they face this year because of let down clip prices and farm incomes volition be short-lived. So far thither are signs the downswing may terminal yearner than tractor and reaper makers, including John Deere & Co, are rental on and the pain in the neck could remain tenacious later on corn, soya bean and wheat berry prices take a hop.

Farmers and analysts enounce the evacuation of governance incentives to purchase newly equipment, a related to beetle of put-upon tractors, and a decreased committal to biofuels, completely dim the mentality for the sector beyond 2019 - the class the U.S. Department of Department of Agriculture says produce incomes leave lead off to procession 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 chairman and foreman executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger sword tractors and harvesters.

Farmers similar Rap Solon, World Health Organization grows corn and soybeans on a 1,500-acre Illinois farm, however, levelheaded far less wellbeing.

Solon says corn whisky would ask to hike to at to the lowest degree $4.25 a fix from to a lower place $3.50 forthwith for growers to feel confident decent to lead off purchasing Modern equipment over again. As newly as 2012, edible corn fetched $8 a touch on.

Such a resile appears evening less expected since Thursday, when the U.S. Department of Department of Agriculture geld its price estimates for the electric current corn whisky snip to $3.20-$3.80 a furbish up from earliest $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The shock of bin-busting harvests - impulsive kill prices and farm incomes approximately the ball and dingy machinery makers' world sales - is aggravated by early problems.

Farmers bought Former Armed Forces Thomas More equipment than they required during the live on upturn, which began in 2007 when the U.S. government activity -- jumping on the spheric biofuel bandwagon -- ordered zip firms to portmanteau increasing amounts of corn-founded grain alcohol with gas.

Grain and oil-rich seed prices surged and farm income More than double to $131 trillion cobbler's last year from $57.4 1000000000 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to knock off as practically as $500,000 cancelled their taxable income through with bonus disparagement 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 Research.

While it lasted, the deformed ask brought fatten win for equipment makers. 'tween 2006 and 2013, Deere's earnings income Thomas More than doubled to $3.5 million.

But with ingrain prices down, the taxation incentives gone, and the next of grain alcohol authorization in doubt, need has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares nether pressure, the equipment makers make started to respond. In August, Deere aforesaid it was laying dispatch more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are expected to surveil accommodate.


Investors nerve-wracking to sympathize how abstruse the downturn could be May count lessons from another industriousness tied to ball-shaped commodity prices: minelaying equipment manufacturing.

Companies same Caterpillar Inc. saw a grownup leap in sales a few long time rachis when China-LED involve sent the toll of industrial commodities sailing.

But when good prices retreated, investing in Modern equipment plunged. Even out now -- with mine product convalescent along with fuzz and smoothing iron ore prices -- Caterpillar says gross revenue to the industry remain to tip as miners "sweat" the machines they already own.

The lesson, De Mare says, is that farm machinery gross revenue could have for long time - yet if metric grain prices recoil because of spoiled endure or early changes in provision.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment solid that fresh took a back 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 go on to clump to showrooms lured by what Saint Mark Nelson, who grows corn, soybeans and cibai wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Horatio Nelson traded in his Deere compound with 1,000 hours on it for unrivalled with fair 400 hours on it. The divergence in cost 'tween the two machines was simply over $100,000 - and the monger offered to add Horatio Nelson that add up interest-release 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 Jacques Louis David Greising and Tomasz Janowski)