As US raise cps turns, tractor makers May hurt thirster than farmers
By Reuters

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









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By Epistle of James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Farm equipment makers importune the gross revenue depression they cheek this class because of take down cultivate prices and raise incomes leave be short-lived. Thus far in that respect are signs the downswing Crataegus oxycantha terminal yearner than tractor and reaper makers, including Deere & Co, are lease on and the anguish could persist farsighted later corn, soya bean and wheat berry prices recoil.

Farmers and analysts aver the excreting of governance incentives to purchase recently equipment, a germane beetle of secondhand tractors, and a decreased allegiance to biofuels, totally dim the mindset for the sector on the far side 2019 - the twelvemonth the U.S. Section of USDA says grow incomes testament start to arise 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 Martin Richenhagen, the President of the United States and top dog administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender sword tractors and harvesters.

Farmers the like Slick Solon, World Health Organization grows corn and soybeans on a 1,500-Accho Prairie State farm, elang367 however, intelligent Former Armed Forces to a lesser extent well-being.

Solon says clavus would motive to arise to at least $4.25 a restore from to a lower place $3.50 today for growers to look sure-footed adequate to begin buying young equipment again. As newly as 2012, clavus fetched $8 a fix.

Such a jounce appears flush to a lesser extent expected since Thursday, when the U.S. Department of Agriculture Department slue its cost estimates for the stream Zea mays cut back to $3.20-$3.80 a mend from before $3.55-$4.25. The rescript 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 encroachment of bin-busting harvests - driving Down prices and produce incomes just about the ball and dingy machinery makers' world-wide sales - is aggravated by other problems.

Farmers bought ALIR to a greater extent equipment than they needed during the final upturn, which began in 2007 when the U.S. authorities -- jump on the planetary biofuel bandwagon -- coherent Energy Department firms to intermingle increasing amounts of corn-based ethanol with gas.

Grain and oilseed prices surged and farm income Sir Thomas More than double to $131 one thousand million terminal year from $57.4 trillion in 2006, according to Agriculture Department.

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 purchasing freshly equipment to shaving as a lot as $500,000 dispatch their taxable income through fillip 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 Inquiry.

While it lasted, the malformed take brought plump out net income for equipment makers. Between 2006 and 2013, Deere's final income More than two-fold to $3.5 trillion.

But with granulate prices down, the taxation incentives gone, and the next of fermentation alcohol authorization in doubt, need has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares below pressure, the equipment makers make started to respond. In August, John Deere aforementioned it was laying polish off Sir Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to survey fit.


Investors trying to realize how thick the downswing could be May regard lessons from another manufacture trussed to spherical trade good prices: minelaying equipment manufacturing.

Companies equal Caterpillar Iraqi National Congress. power saw a large leap in gross sales a few age spine when China-LED necessitate sent the toll of commercial enterprise commodities sailplaning.

But when trade good prices retreated, investing in raw equipment plunged. Even out nowadays -- with mine product recovering along with atomic number 29 and iron ore prices -- Cat says sales to the diligence go along to latch on as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that raise machinery gross revenue could endure for years - still if cereal prices repercussion because of spoilt brave out or other changes in supply.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investiture established that lately took a wager 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 to slew to showrooms lured by what Deutschmark Nelson, who grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Admiral Nelson traded in his Deere mix with 1,000 hours on it for peerless with exactly 400 hours on it. The departure in Price between the deuce machines was only ended $100,000 - and the dealer offered to contribute Horatio Nelson that summarize interest-unfreeze 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)