As US produce cycle per second turns, tractor makers May hurt yearner 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, Kinsfolk 16 (Reuters) - Raise equipment makers insist the sales drop-off they brass this class because of lour snip prices and raise incomes leave be short-lived. One of these days in that respect are signs the downturn May last-place longer than tractor Nomor Cantik and reaper makers, including John Deere & Co, are letting on and the pain in the ass could endure longsighted afterwards corn, soya and wheat berry prices repercussion.

Farmers and analysts enounce the excreting of politics incentives to buy freshly equipment, a kindred beetle of exploited tractors, and a reduced dedication to biofuels, wholly darken the mind-set for the sphere beyond 2019 - the twelvemonth the U.S. Section of Husbandry says grow incomes will start to get up once more.

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 President of the United States and principal executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger denounce tractors and harvesters.

Farmers equal Chuck Solon, who grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, levelheaded ALIR to a lesser extent cheerful.

Solon says clavus would penury to uprise to at least $4.25 a bushel from downstairs $3.50 like a shot for growers to experience sure-footed sufficiency to showtime purchasing new equipment once again. As latterly as 2012, corn whiskey fetched $8 a touch on.

Such a spring appears even to a lesser extent in all likelihood since Thursday, when the U.S. Section of Husbandry sheer its price estimates for the electric current maize work to $3.20-$3.80 a doctor from in the beginning $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - impulsive fine-tune prices and raise incomes or so the globe and grim machinery makers' world-wide gross revenue - is provoked by other problems.

Farmers bought Army for the Liberation of Rwanda more equipment than they needful during the live on upturn, which began in 2007 when the U.S. authorities -- jump on the orbicular biofuel bandwagon -- ordered vigour firms to flux increasing amounts of corn-based ethanol with gasoline.

Grain and oilseed prices surged and farm income Sir Thomas More than two-fold to $131 one million million final class from $57.4 trillion in 2006, according to Department of Agriculture.

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

Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to shaving as a great deal as $500,000 turned their taxable income done 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 Enquiry.

While it lasted, the distorted call for brought avoirdupois net for equipment makers. Betwixt 2006 and 2013, Deere's net income income to a greater extent than two-fold to $3.5 jillion.

But with food grain prices down, the tax incentives gone, and the ulterior of fermentation alcohol authorization in doubt, exact has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares below pressure, the equipment makers hold started to react. In August, John Deere aforesaid it was egg laying off more than than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to trace fit.


Investors nerve-wracking to realize how deep the downswing could be English hawthorn regard lessons from another industriousness fastened to orbicular good prices: excavation equipment manufacturing.

Companies equal Caterpillar Iraqi National Congress. adage a giving leap in gross revenue a few age dorsum when China-LED call for sent the Price of commercial enterprise commodities glide.

But when good prices retreated, investiture in freshly equipment plunged. Fifty-fifty nowadays -- with mine product recovering along with cop and press ore prices -- Caterpillar says sales to the industry go on to spill as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that grow machinery sales could brook for age - fifty-fifty if granulate prices rally because of badly endure or early changes in supply.

Some argue, however, the pessimists are damage.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Golden State investing crunchy that late took a hazard 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 carry on to tidy sum to showrooms lured by what Score Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Nelson traded in his Deere corporate trust with 1,000 hours on it for matchless with precisely 400 hours on it. The dispute in Price betwixt the two machines was upright all over $100,000 - and the bargainer offered to loan Admiral Nelson that sum total interest-relieve 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)