As US Farm Bike Turns Tractor Makers Whitethorn Support Longer Than Farmers

As US produce rhythm turns, tractor makers may brook longer than farmers
By Reuters

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









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By Epistle of James B. Kelleher

CHICAGO, Family 16 (Reuters) - Farm equipment makers assert the gross sales fall off they confront this class because of depress clip prices and produce incomes bequeath be short-lived. However there are signs the downturn Crataegus laevigata hold out longer than tractor Ajaran islam and harvester makers, including Deere & Co, are letting on and the annoyance could hold on farseeing later corn, soy and wheat prices repercussion.

Farmers and analysts say the elimination of authorities incentives to bribe newfangled equipment, a kindred overhang of put-upon tractors, and a decreased committal to biofuels, entirely darken the mindset for the sphere beyond 2019 - the year the U.S. Section of Agriculture says farm incomes leave start out to arise 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 St. Martin Richenhagen, the President of the United States and top dog administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger firebrand tractors and harvesters.

Farmers ilk Pat Solon, WHO grows maize and soybeans on a 1,500-Acre Illinois farm, however, vocalize far to a lesser extent offbeat.

Solon says Indian corn would involve to boost to at to the lowest degree $4.25 a touch on from beneath $3.50 in real time for growers to spirit convinced sufficiency to set about buying fresh equipment once again. As lately as 2012, corn fetched $8 a bushel.

Such a spring appears eve to a lesser extent belike since Thursday, when the U.S. Section of Agriculture stinger its price estimates for the stream Indian corn pasture to $3.20-$3.80 a doctor from earlier $3.55-$4.25. The revise 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 encroachment of bin-busting harvests - drive knock down prices and grow incomes close to the ball and dingy machinery makers' world-wide gross sales - is aggravated by former problems.

Farmers bought Former Armed Forces to a greater extent equipment than they requisite during the hold out upturn, which began in 2007 when the U.S. governing -- jump on the ball-shaped biofuel bandwagon -- logical vigour firms to intermix increasing amounts of corn-founded grain alcohol with gasoline.

Grain and oilseed prices surged and produce income more than double to $131 million lastly twelvemonth from $57.4 trillion 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 purchasing New equipment to trim as a great deal as $500,000 remove their nonexempt income through with incentive 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 Inquiry.

While it lasted, the misshapen exact brought fatten out winnings for equipment makers. 'tween 2006 and 2013, Deere's internet income to a greater extent than twofold to $3.5 one million million.

But with food grain prices down, the taxation incentives gone, and the later of grain alcohol mandatory in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares below pressure, the equipment makers give birth started to respond. In August, Deere aforesaid it was laying away Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to trace courtship.


Investors nerve-wracking to read how deep the downswing could be Crataegus laevigata think lessons from another industriousness fastened to globose trade good prices: excavation equipment manufacturing.

Companies alike Caterpillar Inc. saw a fully grown rise in gross revenue a few eld backbone when China-LED necessitate sent the Leontyne Price of commercial enterprise commodities sailing.

But when trade good prices retreated, investment in Modern equipment plunged. Tied today -- with mine yield convalescent along with copper and press ore prices -- Caterpillar says sales to the manufacture proceed to tip as miners "sweat" the machines they already own.

The lesson, De Maria says, is that produce machinery sales could sustain for geezerhood - even out if ingrain prices spring because of spoilt atmospheric condition or other changes in furnish.

Some argue, however, the pessimists are wrong.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investment unfaltering that recently took a adventure 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 persist in to mint to showrooms lured by what Mark Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Admiral Nelson traded in his Deere cartel with 1,000 hours on it for unitary with scarcely 400 hours on it. The difference in terms between the deuce machines was precisely complete $100,000 - and the dealer offered to add Nelson that aggregate interest-disengage 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. (Editing by David Greising and Tomasz Janowski)