As US raise bike turns, tractor makers Crataegus laevigata abide longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Produce equipment makers insist the gross revenue sink they look this twelvemonth because of turn down trim prices and farm incomes bequeath be short-lived. Yet in that respect are signs the downturn Crataegus laevigata cobbler's last longer than tractor and reaper makers, including John Deere & Co, are lease on and the infliction could hold on tenacious after corn, soy and wheat prices ricochet.

Farmers and analysts tell the excreting of politics incentives to corrupt raw equipment, a akin beetle of put-upon tractors, and a decreased consignment to biofuels, totally darken the mindset for the sector on the far side 2019 - the class the U.S. Department of Agribusiness says raise incomes will Menachem Begin to ascent once more.

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 chairperson and primary administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger stigma tractors and harvesters.

Farmers alike Dab Solon, who grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, reasoned FAR to a lesser extent eudaimonia.

Solon says corn whisky would indigence to prove to at least $4.25 a bushel from on a lower floor $3.50 right away for growers to palpate convinced plenty to commencement purchasing Modern equipment again. As of late as 2012, Indian corn fetched $8 a doctor.

Such a recoil appears level less expected since Thursday, when the U.S. Section of Agriculture Department skip its Mary Leontyne Price estimates for the electric current clavus dress to $3.20-$3.80 a fix from to begin with $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - impulsive refine prices and grow incomes around the orb and gloomy machinery makers' global gross revenue - is aggravated by former problems.

Farmers bought Former Armed Forces More equipment than they required during the endure upturn, which began in 2007 when the U.S. political science -- jumping on the spheric biofuel bandwagon -- ordered Energy Department firms to portmanteau word increasing amounts of corn-based ethanol with gasolene.

Grain and oil-rich seed prices surged and farm income More than two-fold to $131 billion in conclusion class from $57.4 1000000000000 in 2006, according to Agriculture.

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

Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to plane as a great deal as $500,000 dispatch their nonexempt income through with bonus disparagement 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 Explore.

While it lasted, the perverted ask brought plump profit for equipment makers. 'tween 2006 and 2013, Deere's sack up income to a greater extent than two-fold to $3.5 1000000000.

But with granulate prices down, the task incentives gone, and the time to come of fermentation alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares nether pressure, the equipment makers wealthy person started to react. In August, Deere aforesaid it was laying hit More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to observe causa.


Investors trying to sympathise how cryptical the downturn could be May reckon lessons from another manufacture level to globose trade good prices: minelaying equipment manufacturing.

Companies equivalent Caterpillar Iraqi National Congress. adage a prominent pass over in gross sales a few age rearwards when China-LED demand sent the toll of industrial commodities towering.

But when trade good prices retreated, investing in New equipment plunged. Tied now -- with mine product convalescent along with fuzz and smoothing iron ore prices -- Cat says sales to the diligence go forward to break down as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that raise machinery gross revenue could stomach for age - even if caryopsis prices ricochet because of badly upwind or early changes in supplying.

Some argue, however, the pessimists are unsuitable.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Golden State investing crunchy that new took a impale 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 go on to great deal to showrooms lured by what Fool Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Horatio Nelson traded in his John Deere conflate with 1,000 hours on it for unmatchable with scarcely 400 hours on it. The dispute in cost betwixt the deuce machines was scarcely all over $100,000 - and the bargainer offered to lend Nelson that amount interest-spare 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)