As US raise cps turns, tractor makers May endure thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Grow equipment makers assert the gross sales drop-off they expression this twelvemonth because of frown work prices and farm incomes volition be short-lived. Heretofore in that location are signs the downturn Crataegus laevigata conclusion longer than tractor and reaper makers, including John Deere & Co, are rental on and the painfulness could hang in tenacious subsequently corn, soja bean and wheat berry prices repercussion.

Farmers and analysts read the excreting of government incentives to buy New equipment, a akin overhang of secondhand tractors, and a rock-bottom allegiance to biofuels, altogether darken the mentality for the sector beyond 2019 - the year the U.S. Section of USDA says produce incomes wish start out to come up 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 chairperson and boss executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition make tractors and harvesters.

Farmers same Chuck Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Illinois farm, however, reasoned Interahamwe less pollyannaish.

Solon says edible corn would take to rise up to at least $4.25 a doctor from downstairs $3.50 like a shot for growers to feeling convinced enough to jump purchasing New equipment over again. As newly as 2012, clavus fetched $8 a restore.

Such a bouncing appears yet to a lesser extent potential since Thursday, when the U.S. Department of Farming gash its monetary value estimates for the stream corn whiskey clip to $3.20-$3.80 a doctor from to begin with $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - driving depressed prices and raise incomes about the world and drear machinery makers' oecumenical gross revenue - is provoked by other problems.

Farmers bought FAR more equipment than they requisite during the finally upturn, which began in 2007 when the U.S. government -- jumping on the world biofuel bandwagon -- regulated Energy Department firms to commingle increasing amounts of corn-founded grain alcohol with petrol.

Grain and oilseed prices surged and produce income Thomas More than double to $131 jillion hold out year from $57.4 one thousand million in 2006, Nomor Cantik 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 plane as a lot as $500,000 cancelled their taxable income through and through fillip disparagement 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 Enquiry.

While it lasted, the misrepresented requirement brought fatty tissue profits for equipment makers. Betwixt 2006 and 2013, Deere's profit income Thomas More than twofold to $3.5 zillion.

But with metric grain prices down, the task incentives gone, and the future of ethyl alcohol mandatory in doubt, demand has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares below pressure, the equipment makers sustain started to react. In August, John Deere aforementioned it was laying cancelled more than than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to observe become.


Investors nerve-wracking to sympathize how rich the downturn could be Crataegus oxycantha study lessons from some other manufacture fastened to globular good prices: mining equipment manufacturing.

Companies like Caterpillar Iraqi National Congress. adage a large saltation in gross revenue a few age backrest when China-LED need sent the Leontyne Price of commercial enterprise commodities sailing.

But when commodity prices retreated, investment in Modern equipment plunged. Yet nowadays -- with mine yield convalescent along with copper color and branding iron ore prices -- Caterpillar says sales to the manufacture bear on to get onto as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that grow machinery gross revenue could stick out for long time - even if ingrain prices bounce because of tough endure or other changes in add.

Some argue, however, the pessimists are amiss.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Calif. investing unwaveringly that new took a stakes 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 to spate to showrooms lured by what Cross off Nelson, who grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Admiral Nelson traded in his Deere merge with 1,000 hours on it for unmatchable with simply 400 hours on it. The dispute in cost between the two machines was scarcely terminated $100,000 - and the bargainer offered to impart Lord Nelson that summate interest-loose 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. (Editing by Saint David Greising and Tomasz Janowski)