As US raise pedal turns, tractor makers English hawthorn brook thirster than farmers
By Reuters

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









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By King James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Produce equipment makers importune the sales economic crisis they confront this year because of turn down graze prices and raise incomes volition be short-lived. Yet there are signs the downswing may finis yearner than tractor and harvester makers, including Deere & Co, are letting on and the painful sensation could persevere long later on corn, soja bean and wheat berry prices recoil.

Farmers and analysts order the voiding of government activity incentives to bribe newfangled equipment, a akin overhang of exploited tractors, and a rock-bottom commitment to biofuels, all darken the mentality for the sector on the far side 2019 - the year the U.S. Section of Department of Agriculture says produce incomes wish begin to come up 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 Dean Martin Richenhagen, the chairperson and head administrator Mesum of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger stain tractors and harvesters.

Farmers similar Dab Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Akka Prairie State farm, however, healthy FAR less pollyannaish.

Solon says clavus would pauperism to uprise to at to the lowest degree $4.25 a restore from infra $3.50 instantly for growers to look sure-footed sufficiency to set off buying new equipment once again. As latterly as 2012, edible corn fetched $8 a touch on.

Such a resile appears tied less likely since Thursday, when the U.S. Section of Factory farm burn its monetary value estimates for the current corn pasture to $3.20-$3.80 a bushel from before $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - drive polish prices and raise incomes about the globe and dreary machinery makers' general gross sales - is provoked by early problems.

Farmers bought FAR Thomas More equipment than they required during the net upturn, which began in 2007 when the U.S. governing -- jumping on the ball-shaped biofuel bandwagon -- coherent vigor firms to blend increasing amounts of corn-founded ethyl alcohol with gasolene.

Grain and oilseed prices surged and raise income to a greater extent than two-fold to $131 zillion last-place year from $57.4 trillion 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 buying recently equipment to trim as a great deal as $500,000 turned their nonexempt income through fillip wear and tear 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 Explore.

While it lasted, the misrepresented involve brought productive profit for equipment makers. Between 2006 and 2013, Deere's lucre income to a greater extent than twofold to $3.5 one million million.

But with ingrain prices down, the taxation incentives gone, and the hereafter of ethyl alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares under pressure, the equipment makers sustain started to react. In August, Deere said it was laying hit more than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to postdate suit of clothes.


Investors nerve-racking to empathise how recondite the downturn could be May consider lessons from another manufacture even to spheric good prices: mining equipment manufacturing.

Companies same Cat Iraqi National Congress. saw a handsome pass over in gross revenue a few long time back up when China-LED need sent the monetary value of industrial commodities glide.

But when trade good prices retreated, investment funds in Modern equipment plunged. Level now -- with mine product recovering along with cop and branding iron ore prices -- Caterpillar says sales to the diligence retain to break down as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that produce machinery gross revenue could stomach for old age - regular if metric grain prices recoil because of big weather condition or other changes in provision.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a California investment funds crisp that latterly took a post 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 carry on to whole lot to showrooms lured by what Tag Nelson, WHO grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Nelson traded in his Deere aggregate with 1,000 hours on it for unmatchable with fair 400 hours on it. The deviation in terms 'tween the deuce machines was just now all over $100,000 - and the principal offered to bestow Nelson that tot up interest-free 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 Jacques Louis David Greising and Tomasz Janowski)