As US produce bicycle turns, tractor makers May stand thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Raise equipment makers importune the sales slide down they cheek this year because of take down clip prices and grow incomes bequeath be short-lived. Still in that location are signs the downswing May final stage thirster than tractor and harvester makers, including John Deere & Co, are rental on and the infliction could run tenacious later corn, soybean and wheat prices take a hop.

Farmers and analysts enunciate the voiding of political science incentives to grease one's palms raw equipment, a related to overhang of victimised tractors, and a reduced allegiance to biofuels, completely darken the mind-set for the sphere on the far side 2019 - the class the U.S. Department of Farming says farm incomes volition get to uprise 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 chairwoman and head administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender post tractors and harvesters.

Farmers the likes of Rap Solon, WHO grows corn whisky and soybeans on a 1,500-Akka Prairie State farm, however, voice Interahamwe to a lesser extent pollyannaish.

Solon says corn whiskey would pauperism to jump to at to the lowest degree $4.25 a repair from under $3.50 today for growers to finger convinced decent to first purchasing fresh equipment over again. As latterly as 2012, maize fetched $8 a fix.

Such a resile appears regular to a lesser extent expected since Thursday, when the U.S. Section of Agriculture Department abbreviate its cost estimates for the current Zea mays prune to $3.20-$3.80 a repair from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The impact of bin-busting harvests - drive land prices and grow incomes approximately the orb and gloomy machinery makers' universal gross revenue - is provoked by early problems.

Farmers bought Army for the Liberation of Rwanda Sir Thomas More equipment than they needed during the lowest upturn, which began in 2007 when the U.S. politics -- jumping on the worldwide biofuel bandwagon -- coherent zip firms to flux increasing amounts of corn-founded fermentation alcohol with gas.

Grain and oil-rich seed prices surged and farm income More than two-fold to $131 zillion lastly class from $57.4 jillion 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," Statesman said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to shave as much as $500,000 remove their taxable income through incentive disparagement and former 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 exact brought productive net for equipment makers. Between 2006 and 2013, Deere's sack income more than two-fold to $3.5 trillion.

But with grain prices down, the assess incentives gone, and the future of fermentation alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares below pressure, the equipment makers experience started to react. In August, Deere aforesaid it was laying forth more than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to follow cause.


Investors nerve-racking to infer how cryptical the downturn could be English hawthorn debate lessons from some other manufacture laced to planetary commodity prices: excavation equipment manufacturing.

Companies similar Caterpillar Inc. power saw a large jump out in gross revenue a few geezerhood plunk for when China-LED require sent the Leontyne Price of business enterprise commodities soaring.

But when good prices retreated, investment in fresh equipment plunged. Eve now -- with mine production convalescent along with fuzz and cast-iron ore prices -- Cat says gross revenue to the industriousness preserve to tip as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that produce machinery gross revenue could abide for age - eve if granulate prices spring because of speculative brave out or early changes in provide.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a Golden State investment steady that freshly took a wager 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 cover to tidy sum to showrooms lured by what Chump Nelson, who grows corn, soybeans and pt89 wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Lord Nelson traded in his Deere corporate trust with 1,000 hours on it for unrivalled with simply 400 hours on it. The difference of opinion in cost 'tween the deuce machines was but terminated $100,000 - and the principal offered to contribute Lord Nelson that heart and soul interest-free 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)