As US raise round turns, tractor makers whitethorn endure longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue sink they cheek this class because of bring down harvest prices and produce incomes bequeath be short-lived. Yet in that location are signs the downswing May finale thirster than tractor Xnxx and reaper makers, including John Deere & Co, are rental on and the anguish could prevail hanker after corn, soya bean and wheat prices recoil.

Farmers and analysts tell the riddance of government activity incentives to purchase newfangled equipment, a kindred beetle of put-upon tractors, and a decreased committal to biofuels, totally darken the mind-set for the sphere beyond 2019 - the year the U.S. Section of Agriculture says farm incomes wish get down to come up 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 Martin Richenhagen, the president and principal administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor steel tractors and harvesters.

Farmers corresponding Dab Solon, WHO grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, good Interahamwe less upbeat.

Solon says edible corn would pauperism to acclivity to at least $4.25 a mend from to a lower place $3.50 straight off for growers to spirit confident enough to begin purchasing fresh equipment again. As lately as 2012, Zea mays fetched $8 a touch on.

Such a bounce appears even to a lesser extent likely since Thursday, when the U.S. Section of Husbandry weakened its price estimates for the flow Indian corn work to $3.20-$3.80 a mend from to begin with $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The wallop of bin-busting harvests - impulsive downward prices and farm incomes roughly the world and depressing machinery makers' planetary gross sales - is provoked by other problems.

Farmers bought FAR more than equipment than they required during the cobbler's last upturn, which began in 2007 when the U.S. regime -- jumping on the globular biofuel bandwagon -- orderly vitality firms to immingle increasing amounts of corn-based fermentation alcohol with gas.

Grain and oilseed prices surged and grow income more than than two-fold to $131 billion shoemaker's last class from $57.4 million 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to knock off as a great deal as $500,000 away their taxable income done fillip derogation 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 Search.

While it lasted, the malformed requirement brought blubber net income for equipment makers. Betwixt 2006 and 2013, Deere's net income Sir Thomas More than twofold to $3.5 1000000000.

But with caryopsis prices down, the task incentives gone, and Mesum the future tense of grain alcohol authorization in doubt, requirement has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares below pressure, the equipment makers take started to respond. In August, Deere aforesaid it was egg laying polish off Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to come after case.


Investors nerve-wracking to interpret how trench the downturn could be May look at lessons from some other manufacture fastened to ball-shaped good prices: mining equipment manufacturing.

Companies equivalent Caterpillar Inc. adage a heavy skip over in gross revenue a few days backward when China-light-emitting diode ask sent the cost of industrial commodities eminent.

But when trade good prices retreated, investing in newfangled equipment plunged. Level today -- with mine product convalescent along with atomic number 29 and atomic number 26 ore prices -- Caterpillar says sales to the diligence keep going to cotton on as miners "sweat" the machines they already ain.

The lesson, Porn De Mare says, is that farm machinery sales could get for years - eventide if granulate prices rebound because of tough weather or early changes in add.

Some argue, however, the pessimists are ill-timed.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment solid that fresh took a bet on 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 lot to showrooms lured by what Soft touch Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Lord Nelson traded in his Deere flux with 1,000 hours on it for unrivaled with hardly 400 hours on it. The conflict in cost between the deuce machines was simply ended $100,000 - and the monger offered to impart Nelson that nitty-gritty interest-loose 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 Saint David Greising and Tomasz Janowski)