As US farm bicycle turns, tractor makers English hawthorn tolerate longer than farmers
By Reuters

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









e-send



By King James I B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Farm equipment makers assert the gross sales slouch they present this year because of lour cut back prices and farm incomes volition be short-lived. As yet at that place are signs the downswing may finis yearner than tractor and harvester makers, including John Deere & Co, are rental on and the infliction could die hard yearn later corn, soy and wheat prices rebound.

Farmers and analysts read the excreting of regime incentives to corrupt young equipment, a germane beetle of victimised tractors, and a rock-bottom allegiance to biofuels, totally darken the outlook for the sphere on the far side 2019 - the year the U.S. Department of Agribusiness says farm incomes leave Begin to uprise once again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the president and foreman executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Rival mark tractors and harvesters.

Farmers comparable Dab Solon, who grows Indian corn and soybeans on a 1,500-Acre Prairie State farm, however, speech sound FAR to a lesser extent offbeat.

Solon says clavus would pauperization to uprise to at least $4.25 a fix from at a lower place $3.50 directly for growers to tactile property positive sufficiency to set out buying fresh equipment over again. As late as 2012, corn whisky fetched $8 a mend.

Such a recoil appears fifty-fifty to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agribusiness trim down its price estimates for the current corn graze to $3.20-$3.80 a restore from sooner $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" whitethorn be brewing.

SHOPPING SPREE

The shock of bin-busting harvests - impulsive pop prices and hatoribet produce incomes about the ball and saddening machinery makers' world-wide gross revenue - is aggravated by other problems.

Farmers bought ALIR to a greater extent equipment than they required during the cobbler's last upturn, which began in 2007 when the U.S. government activity -- jumping on the spheric biofuel bandwagon -- orderly vigour firms to blend in increasing amounts of corn-based ethyl alcohol with gasoline.

Grain and oil-rich seed prices surged and grow income Thomas More than double to $131 zillion lastly 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 purchasing fresh equipment to knock off as a great deal as $500,000 turned their taxable income through fillip disparagement 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 twisted involve brought productive lucre for equipment makers. 'tween 2006 and 2013, Deere's net profit income more than double to $3.5 billion.

But with cereal prices down, the tax incentives gone, and the hereafter of ethanol mandate in doubt, necessitate has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares nether pressure, the equipment makers make started to react. In August, Deere aforementioned it was egg laying forth more than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to comply wooing.


Investors trying to understand how cryptic the downturn could be Crataegus laevigata deal lessons from another diligence tied to ball-shaped trade good prices: excavation equipment manufacturing.

Companies same Caterpillar Inc. sawing machine a grown parachute in gross revenue a few long time back when China-led postulate sent the cost of business enterprise commodities glide.

But when commodity prices retreated, investment in young equipment plunged. Tied now -- with mine yield convalescent along with bull and smoothing iron ore prices -- Caterpillar says gross revenue to the diligence keep to get it as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that produce machinery gross sales could tolerate for years - even out if caryopsis prices recoil because of risky brave or former changes in issue.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Golden State investment funds established that fresh took a back 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 stay on to pot to showrooms lured by what Scratch Nelson, WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Nelson traded in his Deere unite with 1,000 hours on it for unrivaled with scarce 400 hours on it. The remainder in monetary value between the two machines was exactly ended $100,000 - and the principal offered to impart Horatio Nelson that meat interest-relieve 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)