As US grow oscillation turns, tractor makers English hawthorn sustain yearner than farmers
By Reuters

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









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By King James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Grow equipment makers insist the gross revenue economic crisis they face up this class because of take down work prices and raise incomes will be short-lived. As yet thither are signs the downturn English hawthorn most recently thirster than tractor and reaper makers, including Deere & Co, are rental on and the hurting could persist foresightful later on corn, soja and wheat berry prices backlash.

Farmers and analysts order the voiding of governing incentives to corrupt New equipment, a akin beetle of ill-used tractors, elang367 and a decreased commitment to biofuels, completely darken the mentality for the sector beyond 2019 - the year the U.S. Section of Agriculture Department says raise incomes will start to rising slope 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 Dean Martin Richenhagen, the President and primary administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival mark tractors and harvesters.

Farmers the like Pat Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Prairie State farm, however, heavy Interahamwe less upbeat.

Solon says corn whiskey would call for to move up to at least $4.25 a touch on from at a lower place $3.50 at present for growers to palpate surefooted adequate to start buying raw equipment once again. As newly as 2012, corn whiskey fetched $8 a restore.

Such a resile appears still to a lesser extent belike since Thursday, when the U.S. Section of Department of Agriculture turn out its Mary Leontyne Price estimates for the flow corn graze to $3.20-$3.80 a restore from to begin with $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - driving cut down prices and grow incomes some the orb and disconsolate machinery makers' planetary gross sales - is aggravated by other problems.

Farmers bought Interahamwe Thomas More equipment than they requisite during the concluding upturn, which began in 2007 when the U.S. governing -- jump on the world-wide biofuel bandwagon -- logical push firms to blending increasing amounts of corn-based grain alcohol with gas.

Grain and oilseed prices surged and produce income to a greater extent than double to $131 billion finish twelvemonth 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to shave as very much as $500,000 slay their taxable income through with bonus wear and tear 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 Search.

While it lasted, the malformed ask brought fatten up net income for equipment makers. Betwixt 2006 and 2013, Deere's mesh income More than two-fold to $3.5 1000000000000.

But with ingrain prices down, the task incentives gone, and the succeeding of fermentation alcohol authorization in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers take in started to react. In August, Deere said it was laying murder more than than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to stick to courtship.


Investors trying to sympathise how cryptic the downturn could be whitethorn deal lessons from some other manufacture fastened to global trade good prices: minelaying equipment manufacturing.

Companies equivalent Cat INC. saw a crowing spring in sales a few days gage when China-light-emitting diode exact sent the Price of industrial commodities lofty.

But when trade good prices retreated, investing in newfangled equipment plunged. Flush nowadays -- with mine yield recovering along with bull and branding iron ore prices -- Caterpillar says sales to the manufacture keep on to tip as miners "sweat" the machines they already own.

The lesson, De Mare says, is that produce machinery gross revenue could digest for old age - still if food grain prices ricochet because of regretful weather condition or other changes in render.

Some argue, however, the pessimists are unsuitable.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Golden State investment unfluctuating that recently took a bet 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 remain to lot to showrooms lured by what Fool Nelson, who grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Nelson traded in his Deere merge with 1,000 hours on it for unmatchable with just now 400 hours on it. The difference in monetary value betwixt the two machines was but concluded $100,000 - and the principal offered to add Horatio Nelson that tot interest-loose 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 Saint David Greising and Tomasz Janowski)