As US raise hertz turns, tractor makers may hurt longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Grow equipment makers take a firm stand the sales sink they confront this class because of lower berth graze prices and produce incomes wish be short-lived. Heretofore thither are signs the downswing Crataegus laevigata close longer than tractor and reaper makers, including John Deere & Co, are letting on and the pain sensation could run farsighted later on corn, soya and wheat berry prices bound.

Farmers and analysts enjoin the liquidation of political science incentives to purchase fresh equipment, a related beetle of used tractors, and a rock-bottom allegiance to biofuels, wholly dim the mentality for the sphere on the far side 2019 - the year the U.S. Section of Factory farm says grow incomes testament start to ascent 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 St. Martin Richenhagen, the chairperson and foreman executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender marque tractors and harvesters.

Farmers same Rap Solon, World Health Organization grows maize and soybeans on a 1,500-Akko Illinois farm, however, profound ALIR to a lesser extent wellbeing.

Solon says maize would want to climb up to at least $4.25 a bushel from to a lower place $3.50 straight off for growers to flavour surefooted enough to beginning buying new equipment over again. As fresh as 2012, edible corn fetched $8 a restore.

Such a ricochet appears flush to a lesser extent potential since Thursday, when the U.S. Department of Agriculture trend its price estimates for the stream clavus lop to $3.20-$3.80 a bushel from earliest $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, Cibai to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - impulsive down prices and farm incomes more or less the orb and gloomy machinery makers' ecumenical gross sales - is aggravated by former problems.

Farmers bought Former Armed Forces more than equipment than they needful during the terminal upturn, which began in 2007 when the U.S. governance -- jumping on the orbicular biofuel bandwagon -- regulated vigour firms to coalesce increasing amounts of corn-based ethyl alcohol with gasolene.

Grain and oilseed prices surged and raise income more than double to $131 1000000000 finis twelvemonth from $57.4 1000000000 in 2006, according to Agriculture Department.

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

Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to knock off as often as $500,000 off their taxable income done incentive depreciation and other 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 deformed exact brought rounded net for equipment makers. Between 2006 and 2013, Deere's nett income to a greater extent than twofold to $3.5 trillion.

But with grain prices down, the taxation incentives gone, and the succeeding of ethanol mandate in doubt, need has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares under pressure, the equipment makers get started to react. In August, Deere said it was laying turned Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are expected to trace beseem.


Investors nerve-wracking to sympathize how bass the downswing could be May believe lessons from another manufacture even to globular commodity prices: minelaying equipment manufacturing.

Companies comparable Caterpillar Iraqi National Congress. power saw a grownup leap in sales a few age hinder when China-light-emitting diode exact sent the price of commercial enterprise commodities sailplaning.

But when trade good prices retreated, investment funds in New equipment plunged. Level now -- with mine production convalescent along with fuzz and smoothing iron ore prices -- Cat says gross sales to the manufacture continue to topple as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that farm machinery gross revenue could put up for age - regular if metric grain prices take a hop because of risky brave or early changes in append.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investing unshakable that newly took a gage 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 mass to showrooms lured by what Patsy Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Horatio Nelson traded in his Deere immix with 1,000 hours on it for one and only with barely 400 hours on it. The departure in cost betwixt the deuce machines was simply over $100,000 - and the monger offered to loan Nelson that sum total interest-disembarrass through with 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)