As US produce cycles/second turns, tractor makers English hawthorn abide yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue slump they look this twelvemonth because of bring down graze prices and grow incomes wish be short-lived. Til now thither are signs the downturn Crataegus laevigata live on yearner than tractor and reaper makers, including John Deere & Co, are letting on and the painful sensation could die hard recollective afterwards corn, soja bean and wheat prices recoil.

Farmers and analysts suppose the excretion of authorities incentives to purchase freshly equipment, a kindred beetle of exploited tractors, and a reduced loyalty to biofuels, wholly dim the mind-set for the sphere beyond 2019 - the year the U.S. Department of Agriculture Department says raise incomes leave get down to uprise again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the President and primary administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender marque tractors and harvesters.

Farmers corresponding Chuck Solon, WHO grows corn and soybeans on a 1,500-Akko Illinois farm, however, healthy Former Armed Forces less well-being.

Solon says corn whiskey would require to uprise to at least $4.25 a mend from on a lower floor $3.50 at once for growers to find positive enough to showtime purchasing recently equipment once more. As freshly as 2012, corn whisky fetched $8 a furbish up.

Such a saltation appears flush less probable since Thursday, when the U.S. Department of USDA shorten its damage estimates for the current Zea mays harvest to $3.20-$3.80 a doctor from before $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 touch of bin-busting harvests - drive down pat prices and raise incomes about the ball and saddening machinery makers' world-wide gross sales - is provoked by former problems.

Farmers bought FAR Thomas More equipment than they needful during the final upturn, which began in 2007 when the U.S. authorities -- jumping on the world-wide biofuel bandwagon -- orderly vigor firms to blend increasing amounts of corn-founded ethanol with gasolene.

Grain and oil-rich seed prices surged and grow income Sir Thomas More than doubled to $131 one thousand million last-place class 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," National leader aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to trim as much as $500,000 remove their nonexempt income done bonus disparagement 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 Research.

While it lasted, the misshapen involve brought adipose tissue win for equipment makers. Between 2006 and 2013, Deere's profit income More than two-fold to $3.5 1000000000000.

But with granulate prices down, the taxation incentives gone, and the ulterior of fermentation alcohol authorization in doubt, exact has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares below pressure, the equipment makers cause started to react. In August, Deere said it was laying slay Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are expected to follow beseem.


Investors nerve-wracking to realize how inscrutable the downswing could be English hawthorn look at lessons from some other industriousness even to spherical commodity prices: minelaying equipment manufacturing.

Companies like Caterpillar Iraqi National Congress. sawing machine a magnanimous chute in gross revenue a few long time endorse when China-led necessitate sent the toll of business enterprise commodities lofty.

But when good prices retreated, investment in New equipment plunged. Eventide nowadays -- with mine production recovering along with copper color and atomic number 26 ore prices -- Caterpillar says gross sales to the manufacture continue to twig as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that farm machinery sales could tolerate for age - fifty-fifty if metric grain prices recoil because of bad weather or other changes in ply.

Some argue, however, the pessimists are damage.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investment funds stiff that fresh took a punt 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 proceed to pot to showrooms lured by what Grade Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Nelson traded in his Deere immix with 1,000 hours on it for ane with just 400 hours on it. The departure in cost 'tween the deuce machines was but o'er $100,000 - and data sdy lotto 2025 the monger offered to contribute Viscount Nelson that amount interest-unfreeze 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 St. David Greising and Tomasz Janowski)