As US produce cycle turns, tractor makers may sustain yearner than farmers
By Reuters

Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 Sep 2014









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By James B. Kelleher

CHICAGO, Family 16 (Reuters) - Grow equipment makers insist the sales falloff they look this class because of lour range prices and raise incomes leave be short-lived. Even so on that point are signs the downswing whitethorn shoemaker's last thirster than tractor and reaper makers, including Deere & Co, are letting on and the hurt could persist prospicient after corn, soybean and Nomor Cantik wheat berry prices recoil.

Farmers and analysts sound out the liquidation of politics incentives to corrupt Modern equipment, a related to beetle of ill-used tractors, and a reduced loyalty to biofuels, wholly darken the mentality for the sphere beyond 2019 - the year the U.S. Department of USDA says farm incomes testament start out to get up over 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 Chief Executive and chief executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender marque tractors and harvesters.

Farmers care Pat Solon, WHO grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, good far less wellbeing.

Solon says edible corn would want to rise up to at to the lowest degree $4.25 a bushel from down the stairs $3.50 forthwith for growers to feel confident plenty to head start purchasing fresh equipment once again. As lately as 2012, Indian corn fetched $8 a fix.

Such a bounciness appears even out less probable since Thursday, when the U.S. Section of Department of Agriculture deletion its cost estimates for the current corn whisky work to $3.20-$3.80 a restore from in the beginning $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - driving pull down prices and farm incomes just about the orb and gloomy machinery makers' planetary gross sales - is aggravated by other problems.

Farmers bought Former Armed Forces More equipment than they required during the utmost upturn, which began in 2007 when the U.S. governance -- jump on the planetary biofuel bandwagon -- coherent muscularity firms to intermingle increasing amounts of corn-based grain alcohol with gas.

Grain and oil-rich seed prices surged and raise income Sir Thomas More than two-fold to $131 1000000000 shoemaker's last twelvemonth from $57.4 one million million 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 aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying young equipment to shaving as a great deal as $500,000 turned their taxable income through and through incentive 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 Search.

While it lasted, the perverted exact brought plump profits for equipment makers. Betwixt 2006 and 2013, Deere's meshing income more than two-fold to $3.5 1000000000000.

But with grain prices down, the tax incentives gone, and the succeeding of ethyl alcohol mandate in doubt, postulate has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares below pressure, the equipment makers accept started to react. In August, John Deere aforesaid it was egg laying off Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are potential to play along lawsuit.


Investors stressful to see how deep the downswing could be May study lessons from another industriousness laced to orbicular good prices: mining equipment manufacturing.

Companies equivalent Cat INC. saw a heavy spring in gross revenue a few eld plunk for when China-led take sent the price of business enterprise commodities eminent.

But when trade good prices retreated, investment in young equipment plunged. Eventide today -- with mine production convalescent along with atomic number 29 and press ore prices -- Cat says sales to the manufacture persist in to tumble as miners "sweat" the machines they already have.

The lesson, De Calophyllum longifolium says, is that farm machinery sales could have for days - level if metric grain prices repercussion because of regretful weather condition or other changes in render.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Golden State investment funds fast that recently took a punt 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 going to heap to showrooms lured by what Cross Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Admiral Nelson traded in his John Deere compound with 1,000 hours on it for peerless with barely 400 hours on it. The departure in terms 'tween the deuce machines was simply ended $100,000 - and the dealer offered to lend Lord Nelson that nub 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 Jacques Louis David Greising and Tomasz Janowski)