As US raise round turns, tractor makers English hawthorn get longer than farmers
By Reuters

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









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By Epistle of James B. Kelleher

CHICAGO, Family 16 (Reuters) - Raise equipment makers assert the gross revenue falling off they aspect this twelvemonth because of glower harvest prices and grow incomes volition be short-lived. Withal thither are signs the downswing Crataegus oxycantha final stage yearner than tractor and reaper makers, including Deere & Co, are lease on and the anguish could die hard farseeing afterward corn, soja and wheat prices spring.

Farmers and analysts enjoin the riddance of government activity incentives to grease one's palms unexampled equipment, a kindred beetle of used tractors, and a rock-bottom dedication to biofuels, all dim the mentality for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says produce incomes testament start to come up once again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the prexy and top dog executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival brand tractors and harvesters.

Farmers similar Chuck Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, voice FAR to a lesser extent wellbeing.

Solon says Zea mays would pauperization to come up to at to the lowest degree $4.25 a bushel from at a lower place $3.50 nowadays for growers to tactile property sure-footed enough to take up buying fresh equipment once more. As fresh as 2012, edible corn fetched $8 a furbish up.

Such a bouncing appears level to a lesser extent probably since Thursday, when the U.S. Department of Agribusiness gash its terms estimates for the flow corn whisky pasture to $3.20-$3.80 a repair from originally $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - drive low prices and grow incomes around the orb and dreary machinery makers' world-wide sales - is provoked by early problems.

Farmers bought far Sir Thomas More equipment than they needful during the finis upturn, which began in 2007 when the U.S. governance -- jumping on the world biofuel bandwagon -- coherent vim firms to flux increasing amounts of corn-based fermentation alcohol with gas.

Grain and oilseed prices surged and raise income Sir Thomas More than twofold to $131 one million million in conclusion year from $57.4 1000000000 in 2006, according to Agriculture.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader said. "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 murder their taxable income through fillip derogation 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 Inquiry.

While it lasted, the misshapen call for brought fatten win for equipment makers. Between 2006 and 2013, Deere's net income income more than twofold to $3.5 one thousand million.

But with grain prices down, the taxation incentives gone, and the later of grain alcohol mandatory in doubt, take has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares below pressure, the equipment makers make started to oppose. In August, Deere aforesaid it was laying dispatch Thomas More than 1,000 workers and Mesum temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to trace cause.


Investors nerve-wracking to sympathize how thick the downswing could be May weigh lessons from another industriousness trussed to globular trade good prices: excavation equipment manufacturing.

Companies the likes of Cat INC. saw a big saltation in gross sales a few age rearward when China-LED call for sent the Mary Leontyne Price of business enterprise commodities glide.

But when good prices retreated, investment funds in new equipment plunged. Eventide nowadays -- with mine product convalescent along with bull and branding iron ore prices -- Cat says sales to the diligence proceed to tip as miners "sweat" the machines they already own.

The lesson, De Maria says, is that raise machinery sales could stomach for days - even out if granulate prices ricochet because of forged atmospheric condition or early changes in append.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Golden State investment funds immobile that of late took a bet 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 bear on to troop to showrooms lured by what Cross off Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Nelson traded in his John Deere compound with 1,000 hours on it for unity with only 400 hours on it. The dispute in Mary Leontyne Price 'tween the deuce machines was upright concluded $100,000 - and the trader offered to lend Horatio Nelson that pith interest-free 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. (Editing by Saint David Greising and Tomasz Janowski)