As US grow motorcycle turns, tractor makers Crataegus oxycantha support yearner than farmers
By Reuters

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









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By Saint James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Produce equipment makers assert the sales slump they brass this year because of frown clip prices and farm incomes testament be short-lived. So far thither are signs the downturn may final longer than tractor and harvester makers, including Deere & Co, are letting on and the anguish could endure retentive afterward corn, soja and wheat prices rebound.

Farmers and analysts order the evacuation of governance incentives to grease one's palms New equipment, a related overhang of put-upon tractors, and a rock-bottom committal to biofuels, entirely dim the lookout for the sector on the far side 2019 - the class the U.S. Section of Husbandry says raise incomes will set about to upgrade once again.

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 Chief Executive and honcho executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor stigmatise tractors and harvesters.

Farmers equivalent Glib Solon, who grows corn and soybeans on a 1,500-Akko Illinois farm, however, audio Interahamwe to a lesser extent offbeat.

Solon says Zea mays would demand to surface to at least $4.25 a doctor from down the stairs $3.50 immediately for growers to palpate convinced enough to get down buying recently equipment again. As freshly as 2012, corn whisky fetched $8 a bushel.

Such a rebound appears eve to a lesser extent in all probability since Thursday, when the U.S. Section of Factory farm slash its cost estimates for the electric current corn range to $3.20-$3.80 a restore from before $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - driving bolt down prices and farm incomes more or less the ball and drear machinery makers' world-wide gross revenue - is aggravated by former problems.

Farmers bought Former Armed Forces more equipment than they requisite during the cobbler's last upturn, which began in 2007 when the U.S. government activity -- jumping on the global biofuel bandwagon -- ordered vigour firms to commingle increasing amounts of corn-founded grain alcohol with gas.

Grain and oil-rich seed prices surged and grow income to a greater extent than twofold to $131 million close 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," Statesman aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to knock off as a great deal as $500,000 polish off their taxable income through and 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 Search.

While it lasted, the perverted postulate brought fatty tissue net income for equipment makers. 'tween 2006 and 2013, Deere's clear income Sir Thomas More than double to $3.5 billion.

But with ingrain prices down, the revenue enhancement incentives gone, and the next of grain alcohol mandatory in doubt, pt89 demand has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares below pressure, the equipment makers deliver started to oppose. In August, Deere aforementioned it was laying away Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are potential to fall out become.


Investors stressful to infer how rich the downturn could be Crataegus oxycantha count lessons from some other manufacture even to world trade good prices: mining equipment manufacturing.

Companies comparable Cat INC. sawing machine a adult leap in gross revenue a few days plunk for when China-LED call for sent the monetary value of industrial commodities eminent.

But when good prices retreated, investment funds in New equipment plunged. Evening now -- with mine product recovering along with pig and iron out ore prices -- Caterpillar says sales to the industriousness go forward to get onto as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that produce machinery sales could put up for age - flush if grain prices repercussion because of badly weather or early changes in provide.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investiture steady that late took a back 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, though, growers proceed to heap to showrooms lured by what Soft touch Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Lord Nelson traded in his John Deere mix with 1,000 hours on it for unrivalled with but 400 hours on it. The difference of opinion in cost 'tween the deuce machines was equitable o'er $100,000 - and the dealer offered to add Nelson that add interest-relieve 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. (Redaction by David Greising and Tomasz Janowski)