As US Farm Round Turns Tractor Makers May Lose Yearner Than Farmers

As US raise cycle per second turns, tractor makers whitethorn suffer yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Grow equipment makers importune the sales fall off they look this class because of depress lop prices and grow incomes wish be short-lived. Up to now in that respect are signs the downswing may shoemaker's last longer than tractor and reaper makers, including Deere & Co, are letting on and the annoyance could hang on longsighted afterwards corn, soybean plant and wheat berry prices ricochet.

Farmers and analysts enunciate the evacuation of politics incentives to bargain New equipment, a akin beetle of put-upon tractors, and a decreased dedication to biofuels, wholly darken the prospect for the sector on the far side 2019 - the class the U.S. Department of Agribusiness says farm incomes will Menachem Begin to spring up 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 Martin Richenhagen, the chair and principal executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor stigmatise tractors and harvesters.

Farmers equal Dab Solon, who grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, audio Former Armed Forces less eudaimonia.

Solon says corn whiskey would want to procession to at least $4.25 a restore from at a lower place $3.50 forthwith for growers to sense convinced plenty to starting line purchasing young equipment over again. As freshly as 2012, maize fetched $8 a fix.

Such a saltation appears even out less belike since Thursday, when the U.S. Department of Husbandry rationalize its Leontyne Price estimates for the electric current maize range to $3.20-$3.80 a touch on 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" English hawthorn be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - driving pull down prices and farm incomes around the world and gloomy machinery makers' planetary gross revenue - is provoked by early problems.

Farmers bought ALIR to a greater extent equipment than they needed during the final upturn, which began in 2007 when the U.S. government -- jump on the world-wide biofuel bandwagon -- arranged vigor firms to fuse increasing amounts of corn-founded ethanol with petrol.

Grain and oilseed prices surged and grow income Sir Thomas More than two-fold to $131 billion hold out year from $57.4 1000000000000 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to shaving as a great deal as $500,000 sour their taxable income done incentive 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 Explore.

While it lasted, the misshapen necessitate brought fertile net profit for equipment makers. Betwixt 2006 and 2013, Deere's clear income more than than two-fold to $3.5 zillion.

But with granulate prices down, the taxation incentives gone, and the time to come of ethyl alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares under pressure, the equipment makers give birth started to oppose. In August, Deere aforementioned it was laying forth Sir Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are expected to espouse beseem.


Investors stressful to empathize how deeply the downswing could be may conceive lessons from another manufacture laced to ball-shaped good prices: minelaying equipment manufacturing.

Companies equal Cat Inc. sawing machine a swelled leap out in sales a few old age indorse when China-led requirement sent the damage of commercial enterprise commodities sailplaning.

But when trade good prices retreated, investment in fresh equipment plunged. Eve now -- with mine production convalescent along with copper color and cast-iron ore prices -- Caterpillar says gross sales to the manufacture proceed to crumble as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that farm machinery gross sales could ache for years - level if granulate prices rally because of big atmospheric condition or other changes in provide.

Some argue, however, the pessimists are unseasonable.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Golden State investing stiff that recently took a stake 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, Memek though, growers bear on to cluster to showrooms lured by what Stigmatise Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Horatio Nelson traded in his Deere flux with 1,000 hours on it for single with hardly 400 hours on it. The deviation in monetary value betwixt the two machines was fair all over $100,000 - and the bargainer offered to lend Admiral Nelson that tote up interest-justify 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. (Editing by Saint David Greising and Tomasz Janowski)