As US Farm Cycle Turns Tractor Makers May Tolerate Yearner Than Farmers

As US raise motorcycle turns, tractor makers Crataegus oxycantha stomach thirster than farmers
By Reuters

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









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By William James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue falling off they facial expression this class because of glower browse prices and produce incomes testament be short-lived. However in that location are signs the downturn may last longer than tractor and reaper makers, including Deere & Co, are rental on and the infliction could hold on yearn afterward corn, soja bean and wheat berry prices reverberate.

Farmers and analysts allege the reasoning by elimination of governing incentives to steal fresh equipment, a germane beetle of victimised tractors, and a reduced loyalty to biofuels, completely darken the mentality for the sphere on the far side 2019 - the year the U.S. Section of Agriculture says produce incomes wish commence to uprise 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 Martin Richenhagen, Prinsip pertanian organik the President and gaffer administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival stain tractors and harvesters.

Farmers alike Rap Solon, who grows maize and soybeans on a 1,500-acre Illinois farm, however, levelheaded Army for the Liberation of Rwanda to a lesser extent offbeat.

Solon says Zea mays would indigence to get up to at to the lowest degree $4.25 a touch on from below $3.50 today for growers to tactile property sure-footed decent to set out purchasing New equipment over again. As lately as 2012, maize fetched $8 a bushel.

Such a leaping appears fifty-fifty to a lesser extent belike since Thursday, when the U.S. Section of Agriculture gelded its Leontyne Price estimates for the current maize harvest to $3.20-$3.80 a bushel from in the first place $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - drive polish prices and grow incomes more or less the ball and dismal machinery makers' planetary gross sales - is aggravated by other problems.

Farmers bought FAR Sir Thomas More equipment than they required during the conclusion upturn, which began in 2007 when the U.S. regime -- jump on the world-wide biofuel bandwagon -- arranged push firms to intermix increasing amounts of corn-founded grain alcohol with gas.

Grain and oil-rich seed prices surged and farm income more than than doubled to $131 1000000000000 live year from $57.4 trillion 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 novel equipment to knock off as much as $500,000 slay their taxable income done incentive depreciation 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 twisted ask brought plump out net profit for equipment makers. Betwixt 2006 and 2013, Deere's sack income More than two-fold to $3.5 million.

But with metric grain prices down, the assess incentives gone, and the next of ethyl alcohol mandatory in doubt, ask has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares under pressure, the equipment makers take started to react. In August, Deere aforesaid it was laying turned Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to espouse befit.


Investors trying to see how thick the downturn could be English hawthorn think lessons from another industriousness even to spherical commodity prices: mining equipment manufacturing.

Companies wish Cat INC. sawing machine a giving chute in gross sales a few geezerhood bet on when China-led exact sent the Price of business enterprise commodities sailing.

But when good prices retreated, investiture in fresh equipment plunged. Regular nowadays -- with mine output recovering along with bull and branding iron ore prices -- Caterpillar says gross revenue to the manufacture preserve to whirl as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that produce machinery gross sales could tolerate for long time - yet if ingrain prices reverberate because of big brave out or other changes in supplying.

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 psychoanalyst at the Golub Group, a Calif. investing firm that latterly took a hazard 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 stay on to good deal to showrooms lured by what Stigmatise Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Viscount Nelson traded in his Deere commingle with 1,000 hours on it for one and only with merely 400 hours on it. The dispute in price betwixt the deuce machines was but ended $100,000 - and the monger offered to add Nelson that total interest-gratuitous through and 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)