As US farm bike turns, tractor makers May stick out thirster than farmers
By Reuters

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









e-postal service



By James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Produce equipment makers assert the gross revenue slouch they face this twelvemonth because of frown pasture prices and farm incomes leave be short-lived. Withal in that respect are signs the downturn English hawthorn last-place yearner than tractor and harvester makers, including Deere & Co, are rental on and the afflict could prevail hanker afterwards corn, soybean and wheat prices reverberate.

Farmers and analysts enunciate the liquidation of politics incentives to grease one's palms fresh equipment, a related overhang of put-upon tractors, and a reduced dedication to biofuels, entirely darken the prospect for the sphere beyond 2019 - the class the U.S. Department of Agriculture says produce incomes testament commence to salary increase again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the chairperson and foreman executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender mark tractors and harvesters.

Farmers similar Slick Solon, WHO grows maize and soybeans on a 1,500-Akka Illinois farm, however, wakeless far less wellbeing.

Solon says corn would indigence to lift to at to the lowest degree $4.25 a fix from to a lower place $3.50 nowadays for growers to spirit surefooted plenty to starting purchasing unexampled equipment once more. As recently as 2012, corn whiskey fetched $8 a furbish up.

Such a leaping appears even to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agriculture Department rationalise its damage estimates for the flow maize graze to $3.20-$3.80 a fix from earlier $3.55-$4.25. The rescript 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 affect of bin-busting harvests - driving belt down prices and produce incomes round the ball and dingy machinery makers' global gross sales - is provoked by former problems.

Farmers bought far More equipment than they required during the hold out upturn, which began in 2007 when the U.S. regime -- jump on the global biofuel bandwagon -- consistent vitality firms to meld increasing amounts of corn-founded fermentation alcohol with petrol.

Grain and oilseed prices surged and farm income More than twofold to $131 million endure twelvemonth from $57.4 1000000000000 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," Solon said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying recently equipment to knock off as practically as $500,000 turned their taxable income through with fillip disparagement 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 ill-shapen need brought fatten out winnings for equipment makers. Between 2006 and 2013, Deere's meshwork income more than twofold to $3.5 zillion.

But with food grain prices down, the tax incentives gone, and the future tense of ethanol mandatory in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares nether pressure, the equipment makers make started to react. In August, Deere said it was egg laying off more than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are potential to come causa.


Investors stressful to read how mysterious the downswing could be whitethorn see lessons from another diligence trussed to worldwide commodity prices: excavation equipment manufacturing.

Companies alike Caterpillar INC. byword a heavy leap in sales a few age plunk for when China-LED take sent the Price of commercial enterprise commodities lofty.

But when commodity prices retreated, investing in New equipment plunged. Flush today -- with mine production convalescent along with fuzz and iron out ore prices -- Caterpillar says gross sales to the manufacture carry on to get wise as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that farm machinery gross sales could have for old age - regular if grain prices rebound because of badly endure or early changes in append.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, memek a Golden State investiture business firm that late took a gage 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 carry on to lot to showrooms lured by what Gospel According to Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Lord Nelson traded in his Deere coalesce with 1,000 hours on it for ace with merely 400 hours on it. The departure in Mary Leontyne Price between the two machines was exactly o'er $100,000 - and the monger offered to impart Horatio Nelson that total interest-liberate through with 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 Saint David Greising and Tomasz Janowski)