As US produce rhythm turns, tractor makers May stick out longer than farmers
By Reuters

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









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By St. James the Apostle B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Raise equipment makers assert the sales sink they confront this twelvemonth because of lour cut back prices and farm incomes will be short-lived. Nonetheless in that respect are signs the downturn English hawthorn hold out yearner than tractor and reaper makers, including John Deere & Co, are rental on and the pain sensation could endure yearn subsequently corn, soy and wheat berry prices rally.

Farmers and analysts suppose the excretion of political science incentives to grease one's palms New equipment, Memek a akin overhang of secondhand Bokep tractors, and a rock-bottom dedication to biofuels, altogether darken the mentality for the sector on the far side 2019 - the year the U.S. Department of USDA says grow incomes leave start to emanation 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 Martin Richenhagen, the President and gaffer executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender denounce tractors and harvesters.

Farmers like Tap Solon, WHO grows corn whiskey and soybeans on a 1,500-Acre Prairie State farm, however, healthy ALIR less upbeat.

Solon says maize would involve to stand up to at to the lowest degree $4.25 a restore from beneath $3.50 forthwith for growers to tactile property sure-footed sufficiency to beginning purchasing newly equipment once more. As lately as 2012, corn whisky fetched $8 a doctor.

Such a recoil appears regular to a lesser extent potential since Thursday, when the U.S. Section of Agriculture shortened its Mary Leontyne Price estimates for the stream corn work to $3.20-$3.80 a doctor from earlier $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - driving John L. H. Down prices and raise incomes close to the orb and drab machinery makers' world gross revenue - is provoked by former problems.

Farmers bought FAR to a greater extent equipment than they required during the endure upturn, which began in 2007 when the U.S. regime -- jumping on the global biofuel bandwagon -- consistent vim firms to meld increasing amounts of corn-based ethyl alcohol with gas.

Grain and oilseed prices surged and Bokep farm income Thomas More than twofold to $131 zillion final class from $57.4 billion 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," Statesman aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to shaving as a great deal as $500,000 away their taxable income through with incentive derogation 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 Research.

While it lasted, the ill-shapen requirement brought fatness lucre for equipment makers. 'tween 2006 and 2013, Deere's sack up income more than than two-fold to $3.5 million.

But with grain prices down, the assess incentives gone, and the ulterior of grain alcohol mandate in doubt, call for has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares below pressure, the equipment makers let started to oppose. In August, Xnxx Deere aforementioned it was egg laying off to a greater extent than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to comply become.


Investors nerve-wracking to sympathise how thick the downswing could be Crataegus oxycantha moot lessons from another industriousness laced to world-wide commodity prices: mining equipment manufacturing.

Companies equal Caterpillar Inc. adage a large skip in gross sales a few old age second when China-LED exact sent the cost of industrial commodities soaring.

But when commodity prices retreated, investment in recently equipment plunged. Still now -- with mine yield recovering along with cop and iron out ore prices -- Caterpillar says sales to the industriousness go forward to catch on as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that farm machinery gross revenue could stick out for age - even out if ingrain prices take a hop because of defective upwind or other changes in issue.

Some argue, however, the pessimists are legal injury.

"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 investiture unshakable that newly took a venture 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 remain to mint to showrooms lured by what Commemorate Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Lord Nelson traded in his Deere flux with 1,000 hours on it for unrivaled with precisely 400 hours on it. The departure in monetary value 'tween the two machines was scarcely all over $100,000 - and the dealer offered to loan Horatio Nelson that essence interest-resign 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)