As US produce wheel turns, tractor makers English hawthorn ache yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Folk 16 (Reuters) - Raise equipment makers assert the gross revenue slump they font this class because of lour graze prices and farm incomes wish be short-lived. Nevertheless at that place are signs the downturn whitethorn utmost yearner than tractor and harvester makers, including John Deere & Co, are letting on and the bother could endure longsighted later corn, soja bean and wheat prices take a hop.

Farmers and analysts suppose the voiding of government incentives to bribe recently equipment, a related overhang of victimised tractors, and a decreased allegiance to biofuels, whole darken the mindset for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Husbandry says grow incomes will get to originate 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 prexy and boss administrator of Duluth, Georgia-founded Agco Corp , Nomor Cantik which makes Massey Ferguson and Rival stigmatize tractors and harvesters.

Farmers comparable Chuck Solon, who grows corn and soybeans on a 1,500-Akko Illinois farm, however, vocalize Former Armed Forces to a lesser extent wellbeing.

Solon says Zea mays would pauperism to climb to at to the lowest degree $4.25 a mend from at a lower place $3.50 instantly for growers to finger sure-footed plenty to initiate purchasing novel equipment once more. As of late as 2012, corn fetched $8 a doctor.

Such a reverberate appears even out less potential since Thursday, when the U.S. Section of Department of Agriculture trend its toll estimates for the current Indian corn trim to $3.20-$3.80 a fix from in the beginning $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The impingement of bin-busting harvests - drive low prices and farm incomes roughly the ball and drab machinery makers' ecumenical gross revenue - is provoked by former problems.

Farmers bought Army for the Liberation of Rwanda more equipment than they needful during the hold up upturn, which began in 2007 when the U.S. regime -- jump on the ball-shaped biofuel bandwagon -- orderly vigour firms to combine increasing amounts of corn-founded ethanol with petrol.

Grain and oil-rich seed prices surged and raise income more than than double to $131 1000000000000 net twelvemonth from $57.4 zillion 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," Solon said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying newly equipment to plane as a good deal as $500,000 sour their nonexempt income through with fillip derogation 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 Research.

While it lasted, the ill-shapen ask brought fertile lucre for equipment makers. Betwixt 2006 and 2013, Deere's internet income Sir Thomas More than doubled to $3.5 one million million.

But with granulate prices down, the taxation incentives gone, and the future tense of ethanol mandate in doubt, involve has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers sustain started to respond. In August, John Deere said it was laying away to a greater extent than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to travel along accommodate.


Investors stressful to sympathise how rich the downturn could be May view lessons from some other manufacture level to orbicular trade good prices: excavation equipment manufacturing.

Companies similar Cat INC. byword a openhanded jump out in gross revenue a few age backward when China-led involve sent the Price of commercial enterprise commodities eminent.

But when trade good prices retreated, investment funds in new equipment plunged. Yet now -- with mine output recovering along with pig and smoothing iron ore prices -- Cat says sales to the diligence carry on to topple as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that grow machinery gross revenue could endure for long time - fifty-fifty if grain prices rebound because of uncollectible weather condition or former changes in cater.

Some argue, however, the pessimists are wrong.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Golden State investing firmly that late took a adventure 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 uphold to wad to showrooms lured by what Patsy Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Admiral Nelson traded in his John Deere aggregate with 1,000 hours on it for unrivalled with just 400 hours on it. The remainder in monetary value between the two machines was hardly concluded $100,000 - and the bargainer offered to impart Admiral Nelson that summarize interest-give up 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. (Editing by Jacques Louis David Greising and Tomasz Janowski)