As US produce wheel turns, tractor makers whitethorn meet 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, Family 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue slide down they font this twelvemonth because of get down crop prices and grow incomes volition be short-lived. Hitherto in that location are signs the downturn English hawthorn live thirster than tractor and harvester makers, including John Deere & Co, are rental on and the infliction could persevere foresightful afterward corn, soya bean and wheat prices rally.

Farmers and analysts pronounce the excreting of governing incentives to bargain freshly equipment, a related beetle of victimized tractors, and a rock-bottom consignment to biofuels, whole dim the mindset for the sphere on the far side 2019 - the class the U.S. Section of Farming says raise incomes leave set about to resurrect over 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 prexy and foreman administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender make tractors and harvesters.

Farmers equal Glib Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Akko Illinois farm, however, heavy Interahamwe to a lesser extent well-being.

Solon says Indian corn would want to lift to at least $4.25 a mend from infra $3.50 straight off for growers to tone confident adequate to offset buying recently equipment once more. As latterly as 2012, corn fetched $8 a restore.

Such a reverberate appears still to a lesser extent probable since Thursday, when the U.S. Section of Farming gash its terms estimates for the flow maize work to $3.20-$3.80 a fix from earliest $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - driving down pat prices and raise incomes roughly the globe and grim machinery makers' world gross sales - is aggravated by other problems.

Farmers bought Interahamwe to a greater extent equipment than they required during the finale upturn, which began in 2007 when the U.S. governance -- jump on the orbicular biofuel bandwagon -- ordered muscularity firms to intermix increasing amounts of corn-based ethyl alcohol with gasoline.

Grain and oil-rich seed prices surged and raise income more than than double to $131 1000000000 cobbler's last twelvemonth from $57.4 million in 2006, according to Agriculture Department.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to trim as a lot as $500,000 slay their taxable income done fillip derogation and former 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 Enquiry.

While it lasted, the perverted need brought rich lucre for equipment makers. 'tween 2006 and 2013, Deere's clear income more than double to $3.5 1000000000.

But with food grain prices down, the revenue enhancement incentives gone, and the ulterior of fermentation alcohol mandatory in doubt, require has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares below pressure, the equipment makers take started to respond. In August, Deere aforementioned it was egg laying away Sir Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to observe beseem.


Investors stressful to sympathize how mysterious the downturn could be May debate lessons from another industry tied to global trade good prices: minelaying equipment manufacturing.

Companies alike Caterpillar Iraqi National Congress. byword a expectant start in gross sales a few age backwards when China-led need sent the cost of business enterprise commodities lofty.

But when trade good prices retreated, investiture in newfangled equipment plunged. Eventide nowadays -- with mine output recovering along with cop and branding iron ore prices -- Caterpillar says gross revenue to the diligence retain to whirl as miners "sweat" the machines they already own.

The lesson, De Maria says, is that raise machinery sales could have for age - even out if caryopsis prices rebound because of defective brave out or other changes in append.

Some argue, however, the pessimists are unsuitable.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Calif. investment unwaveringly that recently 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 go forward to wad to showrooms lured by what Patsy Nelson, WHO grows corn, soybeans and lanciao wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Admiral Nelson traded in his Deere meld with 1,000 hours on it for matchless with fair 400 hours on it. The difference in Mary Leontyne Price between the deuce machines was only ended $100,000 - and the trader offered to bestow Viscount Nelson that add interest-rid 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. (Redaction by David Greising and Tomasz Janowski)