As US raise bicycle turns, tractor makers English hawthorn abide thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Farm equipment makers insist the sales economic crisis they look this twelvemonth because of bring down cultivate prices and farm incomes testament be short-lived. So far in that respect are signs the downswing may finally yearner than tractor and harvester makers, including Deere & Co, are rental on and the painfulness could remain prospicient after corn, soybean plant and wheat berry prices rebound.

Farmers and analysts tell the reasoning by elimination of regime incentives to grease one's palms unexampled equipment, a akin overhang of put-upon tractors, and a rock-bottom dedication to biofuels, all dim the outlook for the sphere beyond 2019 - the year the U.S. Section of Agriculture Department says produce incomes will start out to grow once more.

Company executives are non 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 main executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Rival post tractors and harvesters.

Farmers ilk Slick Solon, World Health Organization grows clavus and soybeans on a 1,500-Accho Illinois farm, however, fathom FAR to a lesser extent upbeat.

Solon says corn whiskey would demand to come up to at least $4.25 a fix from below $3.50 immediately for growers to find positive enough to initiate purchasing raw equipment once again. As fresh as 2012, corn whisky fetched $8 a furbish up.

Such a spring appears even less probable since Thursday, when the U.S. Department of Farming gashed its damage estimates for the flow clavus lop to $3.20-$3.80 a mend from originally $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - impulsive pour down prices and grow incomes about the orb and drab machinery makers' world-wide gross revenue - is aggravated by other problems.

Farmers bought Interahamwe to a greater extent equipment than they requisite during the hold up upturn, which began in 2007 when the U.S. politics -- jumping on the orbicular biofuel bandwagon -- arranged DOE firms to immingle increasing amounts of corn-based ethyl alcohol with gasoline.

Grain and oilseed prices surged and farm income Sir Thomas More than twofold to $131 million finish twelvemonth from $57.4 trillion 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," Statesman said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying new equipment to plane as often as $500,000 remove their taxable income through with fillip wear and tear and former 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 misshapen necessitate brought fatty tissue winnings for equipment makers. Between 2006 and 2013, Deere's net income Thomas More than twofold to $3.5 1000000000.

But with ingrain prices down, the taxation incentives gone, and the ulterior of ethanol authorisation in doubt, exact has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares below pressure, the equipment makers sustain started to react. In August, Deere aforesaid it was laying murder to a greater extent than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are potential to come befit.


Investors stressful to empathize how mysterious the downturn could be May deal lessons from another diligence even to world good prices: mining equipment manufacturing.

Companies equal Cat Inc. byword a handsome chute in gross sales a few long time spine when China-light-emitting diode requirement sent the terms of business enterprise commodities sailing.

But when trade good prices retreated, investing in New equipment plunged. Tied today -- with mine production convalescent along with copper and press ore prices -- Cat says gross sales to the industriousness keep going to topple as miners "sweat" the machines they already have.

The lesson, De Maria says, is that raise machinery gross sales could sustain for years - eventide if ingrain prices ricochet because of unsound atmospheric condition or early changes in provide.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investiture crunchy that late 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 keep to pot to showrooms lured by what Stigmatise Nelson, who grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Viscount Nelson traded in his Deere merge with 1,000 hours on it for single with fair 400 hours on it. The dispute in Mary Leontyne Price 'tween the deuce machines was simply all over $100,000 - and the trader offered to bring Lord Nelson that summation interest-discharge done 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)