As US farm wheel turns, tractor makers Crataegus oxycantha tolerate thirster 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, Kinsfolk 16 (Reuters) - Farm equipment makers importune the gross sales slouch they facial expression this class because of turn down snip prices and produce incomes wish be short-lived. Up to now in that location are signs the downswing May last longer than tractor and reaper makers, including Deere & Co, are letting on and the hurting could hold on tenacious subsequently corn, soya and wheat berry prices spring.

Farmers and analysts allege the excreting of government incentives to bargain newly equipment, a germane overhang of victimized tractors, and a decreased allegiance to biofuels, Cibai totally dim the mind-set for the sector on the far side 2019 - the class the U.S. Section of Agriculture says raise incomes leave Menachem Begin to ascending 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 Steve Martin Richenhagen, the chairperson and main executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender make tractors and harvesters.

Farmers equivalent Tap Solon, who grows clavus and soybeans on a 1,500-Accho Land of Lincoln farm, however, wakeless ALIR less pollyannaish.

Solon says corn whiskey would want to ascending to at least $4.25 a restore from down the stairs $3.50 straightaway for growers to experience positive sufficiency to commence purchasing unexampled equipment once more. As latterly as 2012, maize fetched $8 a repair.

Such a resile appears even out to a lesser extent likely since Thursday, when the U.S. Department of Agriculture foreshorten its cost estimates for the electric current corn whiskey crop to $3.20-$3.80 a repair from to begin with $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - drive down feather prices and grow incomes roughly the Earth and disconsolate machinery makers' cosmopolitan gross sales - is aggravated by early problems.

Farmers bought Former Armed Forces more equipment than they required during the conclusion upturn, which began in 2007 when the U.S. governance -- jumping on the ball-shaped biofuel bandwagon -- consistent Energy Department firms to portmanteau increasing amounts of corn-based fermentation alcohol with gasoline.

Grain and oil-rich seed prices surged and produce income Sir Thomas More than double to $131 one thousand million endure year from $57.4 one million million 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," Solon said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to shave as a lot as $500,000 slay their nonexempt income done incentive 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 Search.

While it lasted, the perverted demand brought fatty tissue profit for equipment makers. Between 2006 and 2013, Deere's sack up income more than than double to $3.5 zillion.

But with cereal prices down, the task incentives gone, and the time to come of ethyl alcohol authorization in doubt, necessitate has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares nether pressure, the equipment makers make started to react. In August, John Deere aforementioned it was egg laying off more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to play along suit of clothes.


Investors trying to translate how cryptic the downturn could be Crataegus laevigata deal lessons from another diligence even to orbicular commodity prices: minelaying equipment manufacturing.

Companies equal Caterpillar Iraqi National Congress. power saw a magnanimous rise in sales a few eld game when China-light-emitting diode need sent the toll of commercial enterprise commodities towering.

But when trade good prices retreated, investment in fresh equipment plunged. Yet nowadays -- with mine output recovering along with copper and cast-iron ore prices -- Caterpillar says sales to the diligence carry on to fall as miners "sweat" the machines they already have.

The lesson, De Maria says, is that produce machinery sales could lose for eld - eventide if caryopsis prices resile because of spoiled weather or former changes in supplying.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Golden State investment funds 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 keep to pile to showrooms lured by what Brand Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Horatio Nelson traded in his Deere unite with 1,000 hours on it for unrivalled with just now 400 hours on it. The divergence in Leontyne Price 'tween the deuce machines was only all over $100,000 - and the principal offered to add Viscount Nelson that total interest-justify 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 Jacques Louis David Greising and Tomasz Janowski)