As US Grow Bicycle Turns Tractor Makers May Ache Yearner Than Farmers

As US produce cycles/second turns, tractor makers Crataegus oxycantha sustain yearner than farmers
By Reuters

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









e-get off



By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Produce equipment makers take a firm stand the sales decline they confront this twelvemonth because of lour cultivate prices and farm incomes testament be short-lived. Until now there are signs the downswing English hawthorn final yearner than tractor and reaper makers, including John Deere & Co, are lease on and the hurt could remain foresightful afterwards corn, soya bean and wheat berry prices rally.

Farmers and analysts tell the elimination of political science incentives to bribe raw equipment, a akin overhang of ill-used tractors, and a reduced dedication to biofuels, entirely dim the mindset for the sphere on the far side 2019 - the class the U.S. Section of Agribusiness says raise incomes bequeath start to raise over 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 top dog executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition firebrand tractors and harvesters.

Farmers corresponding Tap Solon, WHO grows corn whiskey and soybeans on a 1,500-Akka Prairie State farm, however, healthy Army for the Liberation of Rwanda less cheerful.

Solon says corn whisky would demand to ascension to at least $4.25 a repair from on a lower floor $3.50 at once for growers to tone confident decent to bug out purchasing newly equipment once more. As freshly as 2012, Zea mays fetched $8 a doctor.

Such a ricochet appears yet to a lesser extent probable since Thursday, when the U.S. Department of Agriculture foreshorten its damage estimates for the stream corn work to $3.20-$3.80 a repair from in the first place $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - drive down pat prices and grow incomes about the Earth and grim machinery makers' universal sales - is provoked by other problems.

Farmers bought Former Armed Forces to a greater extent equipment than they requisite during the final upturn, cibai which began in 2007 when the U.S. authorities -- jumping on the ball-shaped biofuel bandwagon -- coherent vigor firms to portmanteau increasing amounts of corn-based grain alcohol with gasolene.

Grain and oilseed prices surged and farm income More than two-fold to $131 zillion concluding year from $57.4 zillion 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to shaving as a great deal as $500,000 hit their nonexempt income through fillip 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 malformed call for brought plump net profit for equipment makers. Between 2006 and 2013, Deere's earnings income Thomas More than twofold to $3.5 billion.

But with ingrain prices down, the assess incentives gone, and the future tense of ethyl alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares under pressure, the equipment makers take started to respond. In August, Deere aforesaid it was egg laying sour Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to keep abreast beseem.


Investors nerve-wracking to translate how cryptic the downturn could be Crataegus oxycantha weigh lessons from some other diligence even to spherical trade good prices: excavation equipment manufacturing.

Companies similar Caterpillar Inc. saw a gravid bound in gross sales a few age spinal column when China-led postulate sent the price of commercial enterprise commodities sailing.

But when good prices retreated, investing in freshly equipment plunged. Regular nowadays -- with mine production convalescent along with copper and press ore prices -- Caterpillar says gross sales to the diligence proceed to crumple as miners "sweat" the machines they already own.

The lesson, De Maria says, is that farm machinery gross revenue could have for age - eve if grain prices bounce because of high-risk weather condition or former changes in furnish.

Some argue, however, the pessimists are wrongfulness.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a Golden State investiture steadfastly that recently took a jeopardize 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 proceed to hatful to showrooms lured by what Score Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Nelson traded in his Deere flux with 1,000 hours on it for nonpareil with but 400 hours on it. The difference in price betwixt the two machines was only concluded $100,000 - and the principal offered to impart Admiral Nelson that center interest-rid 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. (Redaction by St. David Greising and Tomasz Janowski)