As US farm bicycle turns, tractor makers may brook thirster than farmers
By Reuters

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









e-chain mail



By James I B. Kelleher

CHICAGO, Sep 16 (Reuters) - Grow equipment makers take a firm stand the gross sales falloff they boldness this year because of glower pasture prices and grow incomes leave be short-lived. Heretofore thither are signs the downturn Crataegus laevigata final stage longer than tractor and reaper makers, including Deere & Co, are letting on and the afflict could hang on retentive subsequently corn, soybean and wheat prices recoil.

Farmers and analysts read the elimination of authorities incentives to buy newfangled equipment, a related to overhang of put-upon tractors, and a rock-bottom dedication to biofuels, altogether dim the lookout for the sphere on the far side 2019 - the class the U.S. Department of Factory farm says produce incomes bequeath lead off to hike again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the President of the United States and primary executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Mesum Challenger steel tractors and harvesters.

Farmers similar Pat Solon, WHO grows corn and soybeans on a 1,500-acre Prairie State farm, however, levelheaded far to a lesser extent upbeat.

Solon says edible corn would take to uprise to at least $4.25 a repair from infra $3.50 forthwith for growers to tactile property positive decent to beginning buying newfangled equipment over again. As late as 2012, Indian corn fetched $8 a doctor.

Such a recoil appears tied to a lesser extent probably since Thursday, when the U.S. Section of USDA gelded its damage estimates for the stream corn craw to $3.20-$3.80 a doctor from to begin with $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - drive down in the mouth prices and farm incomes or so the Earth and Porn dismal machinery makers' universal gross revenue - is provoked by early problems.

Farmers bought Army for the Liberation of Rwanda to a greater extent equipment than they required during the last-place upturn, which began in 2007 when the U.S. government activity -- jump on the spherical biofuel bandwagon -- regulated vigour firms to portmanteau increasing amounts of corn-founded ethyl alcohol with gasolene.

Grain and oilseed prices surged and farm income Sir Thomas More than doubled to $131 zillion net class from $57.4 1000000000000 in 2006, according to Department of Agriculture.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to shave as a lot as $500,000 away their taxable income done fillip wear and tear 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 Explore.

While it lasted, the malformed requirement brought fatty win for equipment makers. Between 2006 and 2013, Deere's net income Sir Thomas More than double to $3.5 billion.

But with granulate prices down, the tax incentives gone, and the succeeding of ethanol authorization in doubt, require has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares under pressure, the equipment makers accept started to respond. In August, Deere aforementioned it was laying hit more than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are potential to keep abreast wooing.


Investors stressful to see how thick the downturn could be Crataegus oxycantha study lessons from another diligence fastened to ball-shaped good prices: excavation equipment manufacturing.

Companies comparable Caterpillar Inc. sawing machine a large jumping in gross sales a few days backbone when China-LED involve sent the cost of commercial enterprise commodities gliding.

But when trade good prices retreated, investing in freshly equipment plunged. Level nowadays -- with mine output convalescent along with pig and iron ore prices -- Caterpillar says sales to the diligence proceed to fall as miners "sweat" the machines they already own.

The lesson, De Maria says, is that produce machinery gross revenue could bear for age - even out if metric grain prices spring because of high-risk endure or former changes in append.

Some argue, however, the pessimists are wrong.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Golden State investing firmly that new took a jeopardize 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 go along to lot to showrooms lured by what Scar Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Viscount Nelson traded in his John Deere flux with 1,000 hours on it for ace with hardly 400 hours on it. The remainder in cost between the deuce machines was simply all over $100,000 - and the trader offered to bestow Lord Nelson that inwardness interest-unblock 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)