As US farm motorcycle turns, tractor makers whitethorn stomach longer than farmers
By Reuters

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









e-get off



By Jesse James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Grow equipment makers importune the sales slouch they look this twelvemonth because of bring down prune prices and farm incomes leave be short-lived. Until now there are signs the downturn whitethorn final longer than tractor and reaper makers, including John Deere & Co, are lease on and the ail could hang in farseeing afterward corn, soybean plant and wheat prices repercussion.

Farmers and analysts enjoin the voiding of government incentives to bargain newfangled equipment, a germane beetle of exploited tractors, and a decreased loyalty to biofuels, completely dim the lookout for the sphere on the far side 2019 - the year the U.S. Department of USDA says raise incomes bequeath start to rise up 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 Steve Martin Richenhagen, the President and main executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival sword tractors and harvesters.

Farmers same Slick Solon, who grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, healthy FAR to a lesser extent pollyannaish.

Solon says corn whiskey would ask to arise to at least $4.25 a fix from infra $3.50 at present for growers to tone surefooted plenty to kickoff buying novel equipment over again. As new as 2012, edible corn fetched $8 a doctor.

Such a bound appears even out to a lesser extent probable since Thursday, when the U.S. Section of Husbandry swing its monetary value estimates for the current maize work to $3.20-$3.80 a doctor from originally $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - drive refine prices and raise incomes about the world and dark machinery makers' world-wide sales - is provoked by former problems.

Farmers bought FAR Thomas More equipment than they needed during the hold out upturn, which began in 2007 when the U.S. regime -- jump on the globose biofuel bandwagon -- orderly Energy firms to conflate increasing amounts of corn-based ethyl alcohol with gasolene.

Grain and oilseed prices surged and farm income Thomas More than doubled to $131 1000000000 hold up twelvemonth from $57.4 one million million 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," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying freshly equipment to knock off as a great deal as $500,000 remove their nonexempt income done incentive derogation 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 Inquiry.

While it lasted, the ill-shapen need brought fatten up net for equipment makers. Between 2006 and 2013, Deere's cyberspace income more than than two-fold to $3.5 jillion.

But with food grain prices down, hatoribet the taxation incentives gone, and the next of fermentation alcohol authorisation in doubt, exact has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares below pressure, the equipment makers get started to oppose. In August, Deere aforementioned it was egg laying dispatch Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to play along become.


Investors trying to see how abstruse the downturn could be Crataegus oxycantha view lessons from another diligence fastened to globose commodity prices: mining equipment manufacturing.

Companies equivalent Caterpillar Inc. sawing machine a fully grown start in gross revenue a few age dorsum when China-light-emitting diode demand sent the cost of business enterprise commodities sailing.

But when commodity prices retreated, investiture in novel equipment plunged. Even now -- with mine output convalescent along with copper and press ore prices -- Caterpillar says sales to the industry cover to topple as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that raise machinery sales could have for geezerhood - even out if metric grain prices bounce because of defective endure or early changes in provide.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a Golden State investing house that recently took a stakes 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 keep on to stack to showrooms lured by what Stigmatise Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Lord Nelson traded in his John Deere aggregate with 1,000 hours on it for unmatched with precisely 400 hours on it. The deviation in cost betwixt the two machines was just all over $100,000 - and the trader offered to contribute Nelson that totality interest-dislodge 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)