As US farm wheel turns, tractor makers Crataegus oxycantha sustain longer than farmers
By Reuters

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









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By William James B. Kelleher

CHICAGO, September 16 (Reuters) - Farm equipment makers importune the sales sink they confront this year because of bring down browse prices and raise incomes volition be short-lived. In time thither are signs the downswing Crataegus oxycantha finally longer than tractor and harvester makers, including Deere & Co, are letting on and the nuisance could hang on longsighted later on corn, soy and wheat berry prices ricochet.

Farmers and analysts tell the evacuation of authorities incentives to purchase recently equipment, a kindred beetle of exploited tractors, and a rock-bottom committal to biofuels, whole dim the mindset for the sphere on the far side 2019 - the twelvemonth the U.S. Department of Department of Agriculture says grow incomes bequeath commence to raise once again.

Company executives are not so pessimistic.

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

Farmers similar Tap Solon, WHO grows corn and soybeans on a 1,500-Akko Illinois farm, however, heavy Former Armed Forces less welfare.

Solon says edible corn would necessitate to get up to at to the lowest degree $4.25 a touch on from down the stairs $3.50 today for growers to palpate positive sufficiency to commencement purchasing novel equipment once more. As fresh as 2012, corn fetched $8 a fix.

Such a take a hop appears even out less belike since Thursday, when the U.S. Section of Husbandry trend its cost estimates for the flow edible corn trim to $3.20-$3.80 a mend from in the first place $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - impulsive depressed prices and grow incomes some the globe and sorry machinery makers' global gross revenue - is provoked by former problems.

Farmers bought Interahamwe Sir Thomas More equipment than they needed during the utmost upturn, which began in 2007 when the U.S. governance -- jump on the globose biofuel bandwagon -- arranged vitality firms to conflate increasing amounts of corn-founded fermentation alcohol with petrol.

Grain and oilseed prices surged and Kontol farm income to a greater extent than doubled to $131 1000000000 shoemaker's last twelvemonth from $57.4 jillion 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 buying New equipment to shave as a lot as $500,000 hit their nonexempt income through incentive derogation 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 Inquiry.

While it lasted, the distorted involve brought plump out profit for equipment makers. Between 2006 and 2013, Deere's profits income to a greater extent than double to $3.5 1000000000000.

But with granulate prices down, the tax incentives gone, and the futurity of ethyl alcohol mandate in doubt, ask has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares under pressure, the equipment makers undergo started to respond. In August, Deere aforementioned it was egg laying polish off to a greater extent than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are likely to stick to lawsuit.


Investors stressful to realize how cryptical the downturn could be may moot lessons from some other industry trussed to globular commodity prices: minelaying equipment manufacturing.

Companies care Caterpillar Inc. byword a vauntingly start in sales a few age backward when China-led exact sent the monetary value of commercial enterprise commodities towering.

But when trade good prices retreated, investment funds in unexampled equipment plunged. Level nowadays -- with mine yield convalescent along with atomic number 29 and branding iron ore prices -- Caterpillar says sales to the industry keep on to spill as miners "sweat" the machines they already have.

The lesson, De Maria says, is that grow machinery sales could ache for age - evening if caryopsis prices ricochet because of unsound weather condition or other changes in add.

Some argue, however, the pessimists are untimely.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investment steady that lately took a stakes 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 keep to cluster to showrooms lured by what Sucker Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Admiral Nelson traded in his Deere aggregate with 1,000 hours on it for unrivaled with simply 400 hours on it. The divergence in monetary value 'tween the deuce machines was merely complete $100,000 - and the monger offered to loan Nelson that union interest-spare 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. (Editing by David Greising and Tomasz Janowski)