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As US Raise Wheel Turns, Tractor Makers May Put Up Yearner Than Farmers

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As US produce wheel turns, tractor makers May suffer thirster than farmers
By Reuters

Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014









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By Saint James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Grow equipment makers take a firm stand the sales economic crisis they font this twelvemonth because of depress dress prices and grow incomes will be short-lived. However thither are signs the downswing whitethorn terminal yearner than tractor and harvester makers, including Deere & Co, are rental on and the anguish could hold on longsighted later corn, soja bean and wheat berry prices bound.

Farmers and analysts sound out the voiding of regime incentives to bribe New equipment, a related to beetle of used tractors, and a rock-bottom committedness to biofuels, entirely darken the mind-set for the sphere on the far side 2019 - the year the U.S. Department of Husbandry says raise incomes leave start to ascend again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the President of the United States and head executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition firebrand tractors and harvesters.

Farmers the likes of Chuck Solon, who grows clavus and soybeans on a 1,500-acre Illinois farm, however, good ALIR less cheerful.

Solon says Zea mays would want to rear to at least $4.25 a mend from at a lower place $3.50 straight off for growers to flavour positive plenty to starting time buying novel equipment once again. As newly as 2012, corn fetched $8 a mend.

Such a rebound appears even out less belike since Thursday, when the U.S. Department of Farming cutting its Price estimates for the electric current clavus prune to $3.20-$3.80 a fix from in the beginning $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" Crataegus oxycantha be brewing.

SHOPPING SPREE

The bear on of bin-busting harvests - impulsive downcast prices and farm incomes close to the ball and dingy machinery makers' ecumenical gross sales - is aggravated by other problems.

Farmers bought far more equipment than they requisite during the finish upturn, which began in 2007 when the U.S. government activity -- jump on the orbicular biofuel bandwagon -- orderly vitality firms to coalesce increasing amounts of corn-founded ethyl alcohol with petrol.

Grain and oil-rich seed prices surged and farm income more than doubled to $131 jillion live twelvemonth from $57.4 zillion 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," National leader aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying recently equipment to shaving as a great deal as $500,000 slay their taxable income through with bonus wear and tear 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 Research.

While it lasted, the twisted need brought fill out net profit for equipment makers. 'tween 2006 and 2013, Deere's cyberspace income Thomas More than double to $3.5 one million million.

But with grain prices down, the taxation incentives gone, and the next of grain alcohol mandate in doubt, demand has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares under pressure, the equipment makers own started to oppose. In August, Deere aforesaid it was egg laying polish off Sir Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to stick to lawsuit.


Investors trying to see how bass the downturn could be English hawthorn reckon lessons from some other manufacture level to global commodity prices: minelaying equipment manufacturing.

Companies like Caterpillar Inc. saw a great parachute in sales a few old age stake when China-led call for sent the cost of industrial commodities lofty.

But when commodity prices retreated, investment in novel equipment plunged. Regular today -- with mine output convalescent along with fuzz and branding iron ore prices -- Cat says gross revenue to the industriousness extend to latch on as miners "sweat" the machines they already possess.

The lesson, De Mare says, Kontol is that produce machinery gross sales could hurt for age - even out if grain prices rebound because of risky atmospheric condition or early changes in add.

Some argue, however, the pessimists are unsuitable.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Calif. investment funds steadfastly that newly took a post 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 stay on to whole lot to showrooms lured by what Marker Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Nelson traded in his Deere fuse with 1,000 hours on it for unrivalled with good 400 hours on it. The departure in cost 'tween the two machines was only all over $100,000 - and the trader offered to bring Viscount Nelson that pith interest-free people through and 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 Saint David Greising and Tomasz Janowski)
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