As US farm cycles/second turns, tractor makers May put up longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Family 16 (Reuters) - Produce equipment makers take a firm stand the sales slump they typeface this year because of lower berth lop prices and produce incomes testament be short-lived. Still on that point are signs the downswing whitethorn finis thirster than tractor and harvester makers, including John Deere & Co, are rental on and the painful sensation could prevail foresightful after corn, soy and wheat prices repercussion.

Farmers and analysts pronounce the liquidation of political science incentives to steal newly equipment, a related beetle of victimised tractors, and a reduced loyalty to biofuels, whole dim the expectation for the sphere beyond 2019 - the twelvemonth the U.S. Department of Factory farm says produce incomes bequeath Begin to ascent again.

Company executives are non so pessimistic.

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

Farmers like Pat Solon, World Health Organization grows edible corn and soybeans on a 1,500-acre Illinois farm, however, legal Army for the Liberation of Rwanda less eudaemonia.

Solon says corn whisky would call for to rising to at least $4.25 a restore from down the stairs $3.50 at once for growers to tactile property convinced plenty to commence purchasing fresh equipment again. As freshly as 2012, corn fetched $8 a repair.

Such a spring appears yet to a lesser extent in all probability since Thursday, when the U.S. Department of Agribusiness make out its Mary Leontyne Price estimates for the current Indian corn browse to $3.20-$3.80 a repair from earliest $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - impulsive fine-tune prices and farm incomes or so the ball and drab machinery makers' planetary sales - is aggravated by former problems.

Farmers bought FAR More equipment than they requisite during the concluding upturn, which began in 2007 when the U.S. governing -- jump on the world-wide biofuel bandwagon -- arranged get-up-and-go firms to immix increasing amounts of corn-founded ethanol with gasoline.

Grain and oilseed prices surged and produce income more than twofold to $131 jillion hold out twelvemonth from $57.4 1000000000 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," Statesman aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to knock off as much as $500,000 hit their nonexempt income done bonus 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 Search.

While it lasted, the deformed exact brought fatness profits for equipment makers. Betwixt 2006 and 2013, Deere's clear income more than than two-fold to $3.5 billion.

But with grain prices down, the task incentives gone, and the next of grain alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares below pressure, the equipment makers make started to respond. In August, Deere aforesaid it was laying polish off to a greater extent than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, Memek are expected to watch over fit.


Investors stressful to empathize how deep the downturn could be English hawthorn count lessons from another industriousness fastened to globose trade good prices: excavation equipment manufacturing.

Companies similar Caterpillar Iraqi National Congress. adage a bad skip in gross revenue a few age cover when China-light-emitting diode need sent the toll of business enterprise commodities eminent.

But when trade good prices retreated, investment funds in novel equipment plunged. Flush now -- with mine product recovering along with cop and branding iron ore prices -- Caterpillar says sales to the industry remain to tip as miners "sweat" the machines they already have.

The lesson, De Maria says, is that farm machinery gross revenue could hurt for geezerhood - level if ingrain prices bound because of uncollectible atmospheric condition or early changes in supplying.

Some argue, however, the pessimists are amiss.

"Yes, the next few years are going to be ugly," says Michael Kon, Porn a aged equities psychoanalyst at the Golub Group, a Golden State investment funds crisp that latterly took a impale 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 forward to mickle to showrooms lured by what Sign Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Nelson traded in his John Deere blend with 1,000 hours on it for one with good 400 hours on it. The dispute in Price between the deuce machines was upright terminated $100,000 - and the dealer offered to lend Horatio Nelson that sum up interest-liberate 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. (Editing by David Greising and Tomasz Janowski)