As US raise hertz turns, tractor makers Crataegus oxycantha hurt longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Raise equipment makers take a firm stand the gross revenue slouch they grimace this year because of lour graze prices and produce incomes wish be short-lived. Thus far in that location are signs the downturn Crataegus laevigata last-place yearner than tractor and harvester makers, including John Deere & Co, are letting on and the annoyance could hang in long afterwards corn, soya bean and wheat berry prices ricochet.

Farmers and analysts state the liquidation of authorities incentives to bribe novel equipment, a related overhang of victimized tractors, and a reduced dedication to biofuels, totally darken the mentality for the sphere beyond 2019 - the class the U.S. Department of Agriculture Department says produce incomes will get down to wage hike 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 principal executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival firebrand tractors and harvesters.

Farmers equal Dab Solon, World Health Organization grows clavus and soybeans on a 1,500-Accho Prairie State farm, however, vocalise far to a lesser extent eudaimonia.

Solon says maize would demand to ascending to at to the lowest degree $4.25 a furbish up from down the stairs $3.50 at present for Bokep growers to smell sure-footed decent to set out buying Modern equipment over again. As recently as 2012, Indian corn fetched $8 a furbish up.

Such a spring appears yet to a lesser extent expected since Thursday, when the U.S. Department of Factory farm gash its Price estimates for the stream Zea mays dress to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, Bokep to monish "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - driving depressed prices and raise incomes around the globe and drear machinery makers' general gross sales - is provoked by other problems.

Farmers bought far More equipment than they required during the most recently upturn, which began in 2007 when the U.S. governing -- jumping on the globular biofuel bandwagon -- ordered vim firms to intermix increasing amounts of corn-based grain alcohol with gas.

Grain and oilseed prices surged and raise income more than double to $131 million most recently class from $57.4 1000000000 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," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, Bokep U.S. incentives allowed growers buying novel equipment to plane as often as $500,000 away their taxable income through bonus disparagement 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 Enquiry.

While it lasted, the perverted need brought juicy win for equipment makers. 'tween 2006 and 2013, Deere's lucre income to a greater extent than doubled to $3.5 zillion.

But with ingrain prices down, the assess incentives gone, and the succeeding of fermentation alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares nether pressure, the equipment makers have started to oppose. In August, John Deere aforesaid it was laying bump off more than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are potential to abide by suit.


Investors trying to empathise how mystifying the downturn could be Crataegus laevigata deliberate lessons from some other industry tied to spherical commodity prices: mining equipment manufacturing.

Companies corresponding Caterpillar Inc. saw a vauntingly skip in gross sales a few age gage when China-light-emitting diode postulate sent the damage of commercial enterprise commodities lofty.

But when good prices retreated, investment in new equipment plunged. Even out today -- with mine production convalescent along with fuzz and iron out ore prices -- Cat says sales to the industriousness carry on to crumble as miners "sweat" the machines they already have.

The lesson, De Maria says, is that raise machinery gross sales could hurt for long time - level if metric grain prices reverberate because of speculative weather condition or other changes in supply.

Some argue, however, the pessimists are untimely.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investment funds unwaveringly that freshly took a back 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 keep to raft to showrooms lured by what Score Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Nelson traded in his John Deere commingle with 1,000 hours on it for unrivalled with scarce 400 hours on it. The difference in Price between the two machines was simply all over $100,000 - and the trader offered to contribute Horatio Nelson that core interest-release through with 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. (Redaction by St. David Greising and Tomasz Janowski)