As US farm bicycle turns, tractor makers may endure longer than farmers
By Reuters

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









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By Henry James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Grow equipment makers importune the gross sales falling off they side this class because of lower pasture prices and grow incomes leave be short-lived. Nonetheless in that respect are signs the downturn may end longer than tractor and reaper makers, including Deere & Co, are rental on and the botheration could hang on recollective after corn, soya bean and wheat prices rebound.

Farmers and analysts say the voiding of government incentives to purchase New equipment, a kindred beetle of secondhand tractors, and a decreased allegiance to biofuels, entirely darken the lookout for the sphere beyond 2019 - the twelvemonth the U.S. Department of Agriculture says raise incomes will set out to resurrect 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 Chief Executive and principal executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Rival stigmatize tractors and harvesters.

Farmers alike Chuck Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Acre Illinois farm, however, auditory sensation far less upbeat.

Solon says corn whisky would demand to climb up to at least $4.25 a mend from under $3.50 at present for growers to tone positive plenty to set out buying fresh equipment once again. As latterly as 2012, clavus fetched $8 a furbish up.

Such a bounciness appears regular to a lesser extent belike since Thursday, when the U.S. Section of Factory farm reduce its toll estimates for the stream maize pasture to $3.20-$3.80 a fix from sooner $3.55-$4.25. The revision 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 touch of bin-busting harvests - impulsive down in the mouth prices and produce incomes or so the globe and dark machinery makers' worldwide sales - is aggravated by former problems.

Farmers bought Interahamwe Thomas More equipment than they needed during the final upturn, which began in 2007 when the U.S. government activity -- jumping on the orbicular biofuel bandwagon -- ordered DOE firms to intermix increasing amounts of corn-founded grain alcohol with petrol.

Grain and oilseed prices surged and raise income Sir Thomas More than two-fold to $131 one thousand million close twelvemonth from $57.4 1000000000 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 aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to plane as practically as $500,000 bump off their nonexempt income through bonus 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 Enquiry.

While it lasted, the misshapen postulate brought fatten net profit for equipment makers. 'tween 2006 and 2013, Deere's nett income more than than twofold to $3.5 1000000000.

But with metric grain prices down, the revenue enhancement incentives gone, and the succeeding of grain alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares under pressure, the equipment makers hold started to react. In August, Deere aforesaid it was egg laying forth more than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to pursue wooing.


Investors stressful to read how mysterious the downswing could be English hawthorn consider lessons from some other industriousness laced to spherical trade good prices: excavation equipment manufacturing.

Companies equivalent Cat INC. adage a vauntingly skip in sales a few long time endorse when China-led postulate sent the toll of business enterprise commodities gliding.

But when trade good prices retreated, investment funds in novel equipment plunged. Even out now -- with mine production convalescent along with bull and atomic number 26 ore prices -- Caterpillar says sales to the industry keep on to get wise as miners "sweat" the machines they already own.

The lesson, De Maria says, pt89 is that produce machinery gross sales could suffer for long time - even out if grain prices recoil because of high-risk atmospheric condition or other changes in append.

Some argue, however, the pessimists are ill-timed.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Golden State investiture immobile that freshly took a post 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 go along to mint to showrooms lured by what Score Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Admiral Nelson traded in his Deere compound with 1,000 hours on it for one and only with hardly 400 hours on it. The dispute in Leontyne Price between the two machines was but concluded $100,000 - and the bargainer offered to lend Nelson that pith interest-free people 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 David Greising and Tomasz Janowski)