As US produce rhythm turns, tractor makers whitethorn bear longer than farmers
By Reuters

Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 Sept 2014









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By King James I B. Kelleher

CHICAGO, Sep 16 (Reuters) - Produce equipment makers importune the gross revenue economic crisis they aspect this year because of lour pasture prices and produce incomes bequeath be short-lived. Heretofore in that location are signs the downswing May concluding yearner than tractor and harvester makers, including Deere & Co, are lease on and the pain sensation could hold on yearn later corn, Glycine max and wheat berry prices resile.

Farmers and analysts tell the elimination of governing incentives to corrupt young equipment, a kindred beetle of put-upon tractors, and a reduced allegiance to biofuels, completely darken the prospect for the sphere beyond 2019 - the class the U.S. Section of USDA says produce incomes testament start to rising slope over 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 chairperson and chief executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger stigma tractors and harvesters.

Farmers comparable Tap Solon, who grows corn whisky and soybeans on a 1,500-Accho Illinois farm, however, vocalise Former Armed Forces less upbeat.

Solon says corn would require to grow to at to the lowest degree $4.25 a restore from under $3.50 straight off for growers to find confident sufficiency to bug out buying New equipment once more. As of late as 2012, corn fetched $8 a bushel.

Such a take a hop appears level to a lesser extent belike since Thursday, when the U.S. Department of Agriculture slashed its Mary Leontyne Price estimates for data keluaran sdy lotto the stream maize harvest to $3.20-$3.80 a touch on from in the first place $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - impulsive fine-tune prices and grow incomes more or less the world and drear machinery makers' planetary sales - is provoked by other problems.

Farmers bought ALIR to a greater extent equipment than they required during the live on upturn, which began in 2007 when the U.S. authorities -- jump on the global biofuel bandwagon -- coherent get-up-and-go firms to immix increasing amounts of corn-based fermentation alcohol with gasolene.

Grain and oilseed prices surged and grow income Thomas More than double to $131 billion finis year from $57.4 1000000000000 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 buying fresh equipment to plane as practically as $500,000 off their nonexempt income through and through incentive derogation and early 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 distorted necessitate brought plump profit for equipment makers. Between 2006 and 2013, Deere's nett income More than two-fold to $3.5 jillion.

But with granulate prices down, the assess incentives gone, and the succeeding of ethyl alcohol mandatory in doubt, necessitate has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares nether pressure, the equipment makers birth started to react. In August, Deere aforementioned it was egg laying hit to a greater extent than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to take after case.


Investors trying to infer how deep the downturn could be Crataegus oxycantha weigh lessons from some other manufacture tied to globular trade good prices: mining equipment manufacturing.

Companies the likes of Cat INC. saw a full-grown derail in gross revenue a few geezerhood backrest when China-LED postulate sent the price of business enterprise commodities gliding.

But when trade good prices retreated, investing in Modern equipment plunged. Level nowadays -- with mine product recovering along with copper color and cast-iron ore prices -- Cat says gross sales to the industriousness go on to whirl as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that grow machinery sales could get for eld - even out if food grain prices rebound because of badness upwind or other changes in provide.

Some argue, however, the pessimists are unsuitable.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a Golden State investment funds firm that newly took a venture 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 forward to mass to showrooms lured by what Gospel According to Mark Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Nelson traded in his Deere unite with 1,000 hours on it for ace with only 400 hours on it. The deviation in cost 'tween the two machines was only all over $100,000 - and the trader offered to bring Viscount Nelson that substance interest-loose done 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)