As US farm bike turns, tractor makers whitethorn meet yearner than farmers
By Reuters

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









e-chain mail



By Jesse James B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Produce equipment makers insist the gross revenue decline they nerve this class because of lower trim prices and raise incomes wish be short-lived. One of these days thither are signs the downturn Crataegus laevigata finish longer than tractor and reaper makers, including Deere & Co, are rental on and the ail could endure long later on corn, soya bean and wheat prices bound.

Farmers and analysts tell the excretion of governance incentives to bribe Modern equipment, a germane beetle of put-upon tractors, and a reduced commitment to biofuels, wholly dim the mindset for the sphere on the far side 2019 - the class the U.S. Section of USDA says farm incomes wish commence to uprise again.

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, the president and top dog executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender trade name tractors and harvesters.

Farmers care Chuck Solon, WHO grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, good Former Armed Forces less eudaemonia.

Solon says clavus would require to cost increase to at least $4.25 a restore from beneath $3.50 forthwith for growers to find surefooted adequate to startle purchasing young equipment once more. As late as 2012, clavus fetched $8 a mend.

Such a reverberate appears even out less in all probability since Thursday, when the U.S. Department of Agriculture foreshorten its cost estimates for the stream corn whiskey prune to $3.20-$3.80 a fix from in the beginning $3.55-$4.25. The rewrite 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 on of bin-busting harvests - impulsive refine prices and grow incomes approximately the orb and dingy machinery makers' universal gross revenue - is aggravated by early problems.

Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needed during the lowest upturn, which began in 2007 when the U.S. governing -- jump on the planetary biofuel bandwagon -- arranged Energy firms to flux increasing amounts of corn-founded ethanol with gas.

Grain and oil-rich seed prices surged and produce income to a greater extent than doubled to $131 zillion final twelvemonth from $57.4 jillion 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to plane as a great deal as $500,000 off their taxable income through and through incentive wear and tear and other 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 Explore.

While it lasted, the misshapen demand brought fatten out profits for equipment makers. 'tween 2006 and 2013, Deere's mesh income More than double to $3.5 trillion.

But with cereal prices down, the assess incentives gone, and the futurity of fermentation alcohol authorization in doubt, require has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares below pressure, the equipment makers give started to respond. In August, John Deere aforementioned it was laying dispatch to a greater extent than 1,000 workers and temporarily idleness respective plants. Its rivals, cibai including CNH Industrial NV and Agco, are likely to come after causa.


Investors stressful to realise how trench the downturn could be may weigh lessons from another industry laced to worldwide trade good prices: excavation equipment manufacturing.

Companies ilk Caterpillar Inc. byword a freehanded leap in gross sales a few eld endorse when China-light-emitting diode need sent the terms of industrial commodities gliding.

But when good prices retreated, investing in New equipment plunged. Tied nowadays -- with mine output convalescent along with pig and iron ore prices -- Caterpillar says sales to the industriousness proceed to fall as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, is that farm machinery gross sales could support for years - even if grain prices backlash because of sorry weather or other changes in furnish.

Some argue, however, the pessimists are wrongly.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment firm that new took a gage 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 keep to deal to showrooms lured by what Fool Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Horatio Nelson traded in his Deere mix with 1,000 hours on it for ane with scarcely 400 hours on it. The divergence in cost 'tween the deuce machines was upright all over $100,000 - and the trader offered to add Nelson that total interest-give up 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)