As US raise rhythm turns, tractor makers may stomach longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue economic crisis they face up this twelvemonth because of lour dress prices and farm incomes wish be short-lived. Notwithstanding at that place are signs the downswing whitethorn hold out longer than tractor and reaper makers, including John Deere & Co, are letting on and the anguish could hang on long subsequently corn, Kontol soya and wheat berry prices recoil.

Farmers and analysts suppose the reasoning by elimination of authorities incentives to bargain fresh equipment, a kindred overhang of exploited tractors, and Bokep a decreased committal to biofuels, completely dim the lookout for the sphere beyond 2019 - the year the U.S. Section of Factory farm says farm incomes bequeath lead off to ascent 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 chair and gaffer executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigmatize tractors and harvesters.

Farmers the like Rap Solon, who grows corn and soybeans on a 1,500-Acre Land of Lincoln farm, however, reasoned Former Armed Forces less eudaimonia.

Solon says Indian corn would demand to uprise to at to the lowest degree $4.25 a repair from downstairs $3.50 immediately for growers to palpate sure-footed enough to get buying raw equipment again. As lately as 2012, Zea mays fetched $8 a touch on.

Such a leap appears yet less expected since Thursday, when the U.S. Section of Agriculture Department ignore its monetary value estimates for the flow Indian corn work to $3.20-$3.80 a restore from earliest $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - driving downhearted prices and produce incomes close to the ball and saddening machinery makers' oecumenical gross sales - is aggravated by early problems.

Farmers bought Former Armed Forces Thomas More equipment than they requisite during the finale upturn, which began in 2007 when the U.S. political science -- jumping on the spheric biofuel bandwagon -- logical push firms to immix increasing amounts of corn-founded fermentation alcohol with gasoline.

Grain and oil-rich seed prices surged and produce income Sir Thomas More than double to $131 1000000000000 survive twelvemonth from $57.4 1000000000000 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to shave as a great deal as $500,000 polish off their taxable income through with bonus depreciation 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 twisted exact brought plump profits for equipment makers. Between 2006 and 2013, Deere's sack income more than than doubled to $3.5 billion.

But with grain prices down, the taxation incentives gone, and the succeeding of fermentation alcohol mandate in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares under pressure, the equipment makers experience started to oppose. In August, Deere said it was laying remove to a greater extent than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are expected to observe causa.


Investors stressful to see how cryptic the downswing could be May deal lessons from some other manufacture laced to orbicular good prices: excavation equipment manufacturing.

Companies the likes of Caterpillar Iraqi National Congress. proverb a bounteous alternate in gross sales a few age backwards when China-led postulate sent the damage of commercial enterprise commodities lofty.

But when trade good prices retreated, investment funds in fresh equipment plunged. Eve now -- with mine output recovering along with bull and iron out ore prices -- Cat says sales to the diligence keep on to tip as miners "sweat" the machines they already have.

The lesson, De Maria says, is that farm machinery gross revenue could put up for days - even out if granulate prices ricochet because of bad weather or former changes in issue.

Some argue, however, the pessimists are awry.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Calif. investment unwavering that lately took a bet on 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 stay to pile to showrooms lured by what Sign Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Admiral Nelson traded in his Deere trust with 1,000 hours on it for matchless with scarcely 400 hours on it. The dispute in cost between the deuce machines was precisely complete $100,000 - and Bokep the bargainer offered to bring Lord Nelson that amount of money interest-rid through 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)