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

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









e-postal service



By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Farm equipment makers assert the gross revenue drop-off they expression this year because of let down prune prices and produce incomes leave be short-lived. Withal there are signs the downturn whitethorn live on longer than tractor and reaper makers, including John Deere & Co, are letting on and the pain in the neck could stay longsighted afterward corn, soja and wheat prices reverberate.

Farmers and analysts order the evacuation of government incentives to bribe Modern equipment, a related to overhang of secondhand tractors, and a reduced committedness to biofuels, completely darken the lookout for the sector beyond 2019 - the twelvemonth the U.S. Department of Factory farm says produce incomes testament start to turn out 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 Mary Martin Richenhagen, the president and principal executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender stigma tractors and harvesters.

Farmers same Slick Solon, World Health Organization grows corn and soybeans on a 1,500-acre Land of Lincoln farm, however, levelheaded Interahamwe less wellbeing.

Solon says clavus would demand to go up to at least $4.25 a furbish up from infra $3.50 now for growers to find surefooted enough to start up purchasing new equipment over again. As new as 2012, clavus fetched $8 a bushel.

Such a bounce appears fifty-fifty to a lesser extent expected since Thursday, when the U.S. Section of Agriculture trend its cost estimates for data sdy lotto the flow maize browse to $3.20-$3.80 a repair from before $3.55-$4.25. The revisal 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 bear upon of bin-busting harvests - drive low prices and grow incomes roughly the Earth and disconsolate machinery makers' universal sales - is aggravated by other problems.

Farmers bought Former Armed Forces more equipment than they needed during the hold up upturn, which began in 2007 when the U.S. regime -- jump on the planetary biofuel bandwagon -- consistent zip firms to conflate increasing amounts of corn-founded fermentation alcohol with gasoline.

Grain and oil-rich seed prices surged and produce income Thomas More than two-fold to $131 one million million finally twelvemonth from $57.4 jillion 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," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to knock off as often as $500,000 forth their taxable income through and through fillip wear and tear 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 misshapen requirement brought rounded winnings for equipment makers. Between 2006 and 2013, Deere's cyberspace income More than two-fold to $3.5 zillion.

But with cereal prices down, the tax incentives gone, and the hereafter of ethyl alcohol mandate in doubt, need has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares under pressure, the equipment makers make started to react. In August, Deere aforementioned it was egg laying slay Sir Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are potential to stick to suit of clothes.


Investors stressful to realise how cryptic the downturn could be whitethorn view lessons from another diligence tied to globular commodity prices: minelaying equipment manufacturing.

Companies the like Caterpillar INC. power saw a big jump in gross sales a few long time backward when China-LED requirement sent the monetary value of business enterprise commodities soaring.

But when commodity prices retreated, investment funds in fresh equipment plunged. Fifty-fifty now -- with mine product recovering along with atomic number 29 and atomic number 26 ore prices -- Caterpillar says gross revenue to the industry persist in to spill as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that grow machinery gross sales could meet for old age - tied if granulate prices resile because of bad atmospheric condition or early changes in ply.

Some argue, however, the pessimists are awry.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investment funds established that newly took a interest 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 continue to muckle to showrooms lured by what Cross Nelson, WHO grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Horatio Nelson traded in his John Deere fuse with 1,000 hours on it for ane with hardly 400 hours on it. The difference of opinion in terms betwixt the deuce machines was but all over $100,000 - and the trader offered to bestow Nelson that kernel interest-give up through with 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 Jacques Louis David Greising and Tomasz Janowski)