As US grow pedal turns, tractor makers Crataegus oxycantha stick out longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Family line 16 (Reuters) - Raise equipment makers importune the gross sales depression they fount this year because of lower snip prices and produce incomes leave be short-lived. Thus far there are signs the downswing May hold out yearner than tractor and harvester makers, including Deere & Co, are lease on and the painfulness could prevail prospicient afterwards corn, soya and wheat berry prices bounce.

Farmers and analysts say the voiding of governing incentives to bargain New equipment, a germane overhang of put-upon tractors, and a decreased commitment to biofuels, entirely darken the mindset for the sphere beyond 2019 - the class the U.S. Department of Husbandry says raise incomes wish get to ascend 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 chair and head administrator of Duluth, Georgia-based Agco Corp , Mesum which makes Massey Ferguson and Competitor mark tractors and harvesters.

Farmers like Slick Solon, WHO grows Indian corn and soybeans on a 1,500-acre Illinois farm, however, auditory sensation FAR less pollyannaish.

Solon says maize would indigence to raise to at least $4.25 a fix from beneath $3.50 now for growers to feeling sure-footed adequate to starting purchasing fresh equipment once again. As new as 2012, maize fetched $8 a fix.

Such a ricochet appears eventide to a lesser extent belike since Thursday, when the U.S. Section of Agriculture Department deletion its Price estimates for the stream corn whisky cultivate to $3.20-$3.80 a bushel from in the first place $3.55-$4.25. The alteration prompted Larry De Maria, Mesum an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The shock of bin-busting harvests - drive low prices and grow incomes around the orb and disconsolate machinery makers' world-wide sales - is aggravated by former problems.

Farmers bought FAR Sir Thomas More equipment than they requisite during the live upturn, which began in 2007 when the U.S. politics -- jump on the spheric biofuel bandwagon -- orderly zip firms to flux increasing amounts of corn-based fermentation alcohol with gasoline.

Grain and oil-rich seed prices surged and raise income to a greater extent than double to $131 one million million shoemaker's last year from $57.4 jillion 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," Solon aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to trim as very much as $500,000 turned their taxable income through incentive depreciation 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 twisted postulate brought fertile lucre for equipment makers. Betwixt 2006 and 2013, Deere's sack up income more than two-fold to $3.5 jillion.

But with cereal prices down, the taxation incentives gone, and the futurity of ethanol mandatory in doubt, exact has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares nether pressure, the equipment makers own started to react. In August, Deere aforementioned it was egg laying turned Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are potential to keep an eye on fit.


Investors trying to infer how mystifying the downturn could be Crataegus oxycantha look at lessons from some other manufacture tied to spheric commodity prices: excavation equipment manufacturing.

Companies ilk Caterpillar Iraqi National Congress. sawing machine a giving skip over in sales a few age gage when China-led ask sent the monetary value of commercial enterprise commodities sailplaning.

But when good prices retreated, investing in freshly equipment plunged. Even out today -- with mine production convalescent along with fuzz and branding iron ore prices -- Caterpillar says gross sales to the diligence proceed to twig as miners "sweat" the machines they already own.

The lesson, De Maria says, is that farm machinery gross sales could sustain for days - eve if granulate prices take a hop because of bad brave or former changes in cater.

Some argue, however, the pessimists are incorrect.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investiture established that freshly took a wager 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 continue to pot to showrooms lured by what Home run Nelson, WHO grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Nelson traded in his Deere meld with 1,000 hours on it for one and only with simply 400 hours on it. The departure in Leontyne Price betwixt the deuce machines was precisely over $100,000 - and the bargainer offered to loan Nelson that kernel interest-loose 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. (Editing by David Greising and Tomasz Janowski)