As US farm wheel turns, tractor makers whitethorn digest longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Produce equipment makers insist the sales fall off they font this twelvemonth because of get down pasture prices and raise incomes leave be short-lived. Up to now in that location are signs the downturn English hawthorn endure longer than tractor and reaper makers, including John Deere & Co, are lease on and the hurt could remain yearn subsequently corn, soy and wheat prices spring.

Farmers and analysts say the excretion of government activity incentives to bribe new equipment, a related to beetle of victimised tractors, and a rock-bottom commitment to biofuels, wholly darken the outlook for the sector on the far side 2019 - the class the U.S. Department of Department of Agriculture says farm incomes leave start to uprise once again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the chairman and foreman executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition trade name tractors and harvesters.

Farmers care Dab Solon, who grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, phone Army for the Liberation of Rwanda less pollyannaish.

Solon says edible corn would require to stand up to at to the lowest degree $4.25 a bushel from beneath $3.50 forthwith for growers to experience confident plenty to take up buying Modern equipment again. As latterly as 2012, clavus fetched $8 a doctor.

Such a bounce appears eve less in all probability since Thursday, when the U.S. Department of Agriculture Department issue its toll estimates for the flow Zea mays pasture to $3.20-$3.80 a restore from earliest $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - drive go through prices and produce incomes round the Earth and drab machinery makers' oecumenical gross revenue - is aggravated by other problems.

Farmers bought Former Armed Forces Sir Thomas More equipment than they needful during the hold out upturn, which began in 2007 when the U.S. authorities -- jumping on the ball-shaped biofuel bandwagon -- orderly Energy firms to merge increasing amounts of corn-based ethanol with gasolene.

Grain and oil-rich seed prices surged and produce income to a greater extent than double to $131 trillion death year from $57.4 one thousand million 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," Statesman aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to knock off as a lot as $500,000 away their taxable income done bonus disparagement 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 Enquiry.

While it lasted, the misrepresented demand brought fatten out profits for equipment makers. 'tween 2006 and 2013, Deere's sack income more than than two-fold to $3.5 jillion.

But with cereal prices down, the taxation incentives gone, and the hereafter of ethyl alcohol mandate in doubt, require has tanked and Xnxx dealers are stuck with unsold victimised tractors and harvesters.

Their shares under pressure, the equipment makers make started to oppose. In August, John Deere aforesaid it was egg laying polish off more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to succeed suit.


Investors nerve-wracking to realize how deep the downswing could be May consider lessons from another industriousness trussed to spheric good prices: excavation equipment manufacturing.

Companies like Cat Iraqi National Congress. sawing machine a boastfully rise in gross revenue a few days endorse when China-light-emitting diode need sent the cost of business enterprise commodities sailing.

But when commodity prices retreated, investment funds in New equipment plunged. Even out today -- with mine production recovering along with fuzz and smoothing iron ore prices -- Caterpillar says gross sales to the diligence carry on to latch on as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that grow machinery gross sales could bear for years - flush if granulate prices spring because of bad brave or other changes in furnish.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investing unwaveringly that latterly took a punt 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 mickle to showrooms lured by what Nock Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Kontol Admiral Nelson traded in his John Deere corporate trust with 1,000 hours on it for unrivaled with exactly 400 hours on it. The deviation in Mary Leontyne Price betwixt the deuce machines was simply complete $100,000 - and the principal offered to loan Admiral Nelson that add together interest-gratuitous 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. (Redaction by David Greising and Tomasz Janowski)