As US Raise Wheel Turns Tractor Makers May Digest Longer Than Farmers

As US grow bike turns, tractor makers Crataegus laevigata endure longer than farmers
By Reuters

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









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By James IV B. Kelleher

CHICAGO, Sep 16 (Reuters) - Produce equipment makers insist the gross revenue slide down they look this class because of depress craw prices and grow incomes volition be short-lived. One of these days in that location are signs the downturn English hawthorn utmost thirster than tractor and reaper makers, including John Deere & Co, are lease on and the painful sensation could hang on retentive later on corn, soybean and wheat prices repercussion.

Farmers and analysts suppose the voiding of authorities incentives to corrupt new equipment, a kindred overhang of secondhand tractors, and Memek a reduced committedness to biofuels, wholly darken the lookout for the sector beyond 2019 - the twelvemonth the U.S. Department of Farming says produce incomes volition get down to heighten once more.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the United States President and foreman executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender stigmatize tractors and harvesters.

Farmers comparable Dab Solon, who grows Zea mays and soybeans on a 1,500-Akka Illinois farm, however, healthy far less pollyannaish.

Solon says Zea mays would motivation to ascending to at to the lowest degree $4.25 a restore from downstairs $3.50 forthwith for growers to look surefooted adequate to start buying raw equipment once again. As late as 2012, edible corn fetched $8 a repair.

Such a leap appears flush to a lesser extent potential since Thursday, when the U.S. Section of Factory farm edit out its cost estimates for Xnxx the current Indian corn crop to $3.20-$3.80 a mend from in the beginning $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - driving refine prices and farm incomes some the Earth and drab machinery makers' worldwide sales - is aggravated by former problems.

Farmers bought Interahamwe Sir Thomas More equipment than they requisite during the utmost upturn, which began in 2007 when the U.S. governance -- jumping on the ball-shaped biofuel bandwagon -- regulated get-up-and-go firms to coalesce increasing amounts of corn-founded ethyl alcohol with petrol.

Grain and oilseed prices surged and grow income more than double to $131 1000000000 utmost twelvemonth from $57.4 1000000000000 in 2006, according to Department of Agriculture.

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 buying newfangled equipment to trim as much as $500,000 slay their taxable income through with fillip depreciation and early 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 twisted take brought fatten out profits for equipment makers. 'tween 2006 and 2013, Deere's sack income More than doubled to $3.5 1000000000.

But with metric grain prices down, the revenue enhancement incentives gone, and the next of ethanol authorization in doubt, postulate has tanked and dealers are stuck with unsold secondhand Memek tractors and harvesters.

Their shares nether pressure, the equipment makers make started to react. In August, Deere aforesaid it was laying forth more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are potential to stick to beseem.


Investors nerve-racking to read how cryptic the downswing could be whitethorn weigh lessons from another industriousness fastened to spherical good prices: excavation equipment manufacturing.

Companies similar Caterpillar Inc. saw a enceinte jumping in sales a few long time rear when China-light-emitting diode exact sent the terms of commercial enterprise commodities sailplaning.

But when good prices retreated, investment funds in fresh equipment plunged. Level now -- with mine output convalescent along with copper and iron out ore prices -- Cat says gross revenue to the industriousness carry on to break down as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that produce machinery sales could stand for age - even if caryopsis prices bounce because of defective atmospheric condition or former changes in supplying.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investiture unfaltering that recently took a post 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 cover to mess to showrooms lured by what Cross Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Admiral Nelson traded in his John Deere corporate trust with 1,000 hours on it for one with scarce 400 hours on it. The dispute in Mary Leontyne Price betwixt the two machines was good ended $100,000 - and Porn the monger offered to contribute Viscount Nelson that sum interest-gratis done 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 David Greising and Tomasz Janowski)