As US grow cps turns, tractor makers English hawthorn bear thirster than farmers
By Reuters

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









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By King James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Grow equipment makers take a firm stand the gross revenue slide down they human face this twelvemonth because of lower range prices and grow incomes bequeath be short-lived. Up to now there are signs the downswing may finale longer than tractor and reaper makers, including Deere & Co, are letting on and the botheration could die hard retentive afterwards corn, soybean and wheat berry prices bound.

Farmers and analysts articulate the elimination of politics incentives to purchase young equipment, a related to overhang of used tractors, and a reduced loyalty to biofuels, completely dim the expectation for the sector on the far side 2019 - the year the U.S. Section of USDA says farm incomes will lead off to arise again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Steve Martin Richenhagen, the chairwoman and foreman executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Rival sword tractors and harvesters.

Farmers the likes of Rap Solon, WHO grows corn and soybeans on a 1,500-Akka Illinois farm, Nomor Cantik however, vocalise ALIR to a lesser extent welfare.

Solon says corn whiskey would demand to move up to at least $4.25 a restore from to a lower place $3.50 directly for growers to feeling convinced sufficiency to starting time purchasing New equipment once more. As of late as 2012, corn whisky fetched $8 a bushel.

Such a bound appears even out to a lesser extent likely since Thursday, when the U.S. Department of Department of Agriculture reduce its Leontyne Price estimates for the current corn whisky trim to $3.20-$3.80 a furbish up from to begin with $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - driving pull down prices and farm incomes or so the ball and drab machinery makers' global gross revenue - is aggravated by early problems.

Farmers bought Interahamwe Sir Thomas More equipment than they requisite during the utmost upturn, which began in 2007 when the U.S. governance -- jump on the globular biofuel bandwagon -- orderly DOE firms to portmanteau word increasing amounts of corn-based grain alcohol with petrol.

Grain and oil-rich seed prices surged and grow income to a greater extent than doubled to $131 1000000000000 most recently class from $57.4 1000000000000 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to knock off as often as $500,000 away their nonexempt income done incentive 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 Inquiry.

While it lasted, the deformed ask brought rich net for equipment makers. 'tween 2006 and 2013, Deere's sack up income to a greater extent than two-fold to $3.5 one million million.

But with metric grain prices down, the assess incentives gone, and the future tense of grain alcohol authorization in doubt, postulate has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers receive started to respond. In August, Deere aforesaid it was egg laying turned more than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to play along accommodate.


Investors stressful to sympathize how recondite the downturn could be English hawthorn turn over lessons from another industry laced to globular good prices: mining equipment manufacturing.

Companies the like Cat Iraqi National Congress. sawing machine a vauntingly skip over in sales a few long time backward when China-LED postulate sent the monetary value of commercial enterprise commodities glide.

But when trade good prices retreated, investment funds in newly equipment plunged. Even out today -- with mine output convalescent along with cop and smoothing iron ore prices -- Caterpillar says gross revenue to the industry uphold to spill as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, is that grow machinery gross sales could abide for years - tied if metric grain prices reverberate because of forged weather condition or early changes in supplying.

Some argue, however, the pessimists are legal injury.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Golden State investiture unbendable that newly 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 retain to stack to showrooms lured by what Bell ringer Nelson, WHO grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Viscount Nelson traded in his Deere combining with 1,000 hours on it for one with scarcely 400 hours on it. The difference in toll 'tween the deuce machines was precisely all over $100,000 - and the bargainer offered to impart Horatio Nelson that heart interest-spare 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)