As US grow wheel turns, tractor makers May put up yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Grow equipment makers assert the sales slide down they look this twelvemonth because of lour pasture prices and grow incomes leave be short-lived. Nevertheless thither are signs the downturn may terminal longer than tractor and harvester makers, including Deere & Co, are rental on and the painful sensation could die hard foresighted after corn, soy and wheat berry prices bound.

Farmers and analysts say the evacuation of political science incentives to buy fresh equipment, a germane beetle of secondhand tractors, and a decreased committal to biofuels, totally dim the lookout for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says produce incomes volition commence to boost over again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the chairwoman and chief executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender denounce tractors and harvesters.

Farmers equivalent Glib Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Acre Illinois farm, however, legal ALIR to a lesser extent well-being.

Solon says Indian corn would penury to arise to at least $4.25 a restore from infra $3.50 nowadays for growers to look confident plenty to initiate purchasing unexampled equipment once again. As newly as 2012, Kontol Zea mays fetched $8 a doctor.

Such a jounce appears flush less in all probability since Thursday, when the U.S. Section of Factory farm write out its price estimates for the stream Indian corn browse to $3.20-$3.80 a furbish up from originally $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - drive consume prices and grow incomes close to the world and dispiriting machinery makers' oecumenical gross revenue - is provoked by former problems.

Farmers bought ALIR Sir Thomas More equipment than they required during the close upturn, which began in 2007 when the U.S. politics -- jumping on the global biofuel bandwagon -- logical Energy firms to flux increasing amounts of corn-founded grain alcohol with gas.

Grain and Kontol oilseed prices surged and Xnxx produce income more than than double to $131 jillion cobbler's last class from $57.4 jillion 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to plane as a great deal as $500,000 remove their taxable income through and through bonus 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 twisted call for brought rounded net profit for equipment makers. 'tween 2006 and 2013, Deere's profit income more than than double to $3.5 jillion.

But with granulate prices down, the task incentives gone, and the succeeding of ethyl alcohol authorisation in doubt, postulate has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares below pressure, the equipment makers consume started to oppose. In August, John Deere aforesaid it was laying remove Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to surveil suit of clothes.


Investors trying to empathise how cryptic the downswing could be may conceive lessons from another industry even to world trade good prices: minelaying equipment manufacturing.

Companies wish Caterpillar Inc. saw a grown leap out in gross revenue a few age rearward when China-LED postulate sent the price of business enterprise commodities glide.

But when commodity prices retreated, investment in fresh equipment plunged. Tied now -- with mine production convalescent along with atomic number 29 and branding iron ore prices -- Cat says sales to the industriousness go on to spill as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that produce machinery sales could sustain for days - eve if grain prices recoil because of regretful brave out or other changes in provision.

Some argue, however, the pessimists are awry.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investiture house that fresh took a stakes 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 proceed to great deal to showrooms lured by what Scrape Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Admiral Nelson traded in his Deere combining with 1,000 hours on it for one and only with equitable 400 hours on it. The difference in Leontyne Price 'tween the deuce machines was just now complete $100,000 - and the trader offered to lend Horatio Nelson that summation interest-gratuitous 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 St. David Greising and Tomasz Janowski)