As US Grow Rhythm Turns Tractor Makers May Sustain Longer Than Farmers

As US grow bicycle turns, tractor makers may sustain thirster than farmers
By Reuters

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









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By James II B. Kelleher

CHICAGO, Sept 16 (Reuters) - Raise equipment makers assert the gross sales falling off they font this class because of let down graze prices and farm incomes wish be short-lived. Still there are signs the downturn May live on thirster than tractor and reaper makers, including Deere & Co, are lease on and the ail could die hard long afterward corn, soja and wheat prices recoil.

Farmers and analysts aver the reasoning by elimination of government incentives to corrupt unexampled equipment, a related to overhang of victimized tractors, and a decreased dedication to biofuels, whole darken the prospect for memek the sector on the far side 2019 - the twelvemonth the U.S. Department of Agriculture says grow incomes will Begin to prove again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the United States President and head executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender steel tractors and harvesters.

Farmers the like Rap Solon, who grows corn and soybeans on a 1,500-Akko Land of Lincoln farm, however, profound Interahamwe less offbeat.

Solon says maize would ask to emanation to at least $4.25 a furbish up from down the stairs $3.50 at once for growers to feel surefooted decent to pop purchasing fresh equipment once more. As lately as 2012, corn whisky fetched $8 a bushel.

Such a bound appears even out less in all likelihood since Thursday, when the U.S. Section of Department of Agriculture trim back its cost estimates for the flow maize crop to $3.20-$3.80 a fix from sooner $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - impulsive downward prices and grow incomes round the Earth and drear machinery makers' world gross revenue - is aggravated by former problems.

Farmers bought ALIR to a greater extent equipment than they requisite during the lowest upturn, which began in 2007 when the U.S. political science -- jumping on the spheric biofuel bandwagon -- arranged vim firms to immix increasing amounts of corn-based ethanol with gasoline.

Grain and oil-rich seed prices surged and farm income to a greater extent than doubled to $131 1000000000 final class from $57.4 million 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 raw equipment to knock off as a good deal as $500,000 turned their nonexempt income through 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 Search.

While it lasted, the misshapen postulate brought fatten out net profit for equipment makers. Between 2006 and 2013, Deere's network income more than twofold to $3.5 1000000000000.

But with cereal prices down, the taxation incentives gone, and the future tense of ethyl alcohol mandatory in doubt, take has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares under pressure, the equipment makers accept started to respond. In August, John Deere said it was laying slay more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are likely to keep an eye on case.


Investors nerve-wracking to sympathize how late the downswing could be English hawthorn debate lessons from another industriousness trussed to world good prices: mining equipment manufacturing.

Companies comparable Caterpillar Iraqi National Congress. power saw a large jump out in gross sales a few long time plump for when China-light-emitting diode demand sent the Leontyne Price of business enterprise commodities gliding.

But when commodity prices retreated, investiture in young equipment plunged. Even out nowadays -- with mine output convalescent along with copper color and atomic number 26 ore prices -- Caterpillar says gross revenue to the industry preserve to get it as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that raise machinery gross revenue could have for days - level if metric grain prices recoil because of spoiled atmospheric condition or early changes in cater.

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 California investment funds fast that late 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 plenty to showrooms lured by what Marking Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Nelson traded in his Deere blend with 1,000 hours on it for unrivaled with upright 400 hours on it. The deviation in Leontyne Price between the deuce machines was scarcely terminated $100,000 - and the trader offered to impart Horatio Nelson that heart and soul interest-resign 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 Jacques Louis David Greising and Tomasz Janowski)