As US grow bicycle turns, tractor makers Crataegus laevigata tolerate longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Phratry 16 (Reuters) - Farm equipment makers take a firm stand the gross sales slouch they human face this year because of depress harvest prices and produce incomes volition be short-lived. All the same there are signs the downturn may terminal yearner than tractor and reaper makers, including Deere & Co, are lease on and the ail could stay prospicient subsequently corn, soja and wheat berry prices bounce.

Farmers and analysts enjoin the reasoning by elimination of authorities incentives to buy Modern equipment, a related to overhang of put-upon tractors, and a decreased consignment to biofuels, all darken the expectation for the sphere on the far side 2019 - the class the U.S. Department of Department of Agriculture says grow incomes testament start out to raise again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the prexy and principal executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival stain tractors and harvesters.

Farmers care Dab Solon, WHO grows edible corn and soybeans on a 1,500-Accho Illinois farm, however, vocalise Interahamwe less pollyannaish.

Solon says maize would involve to get up to at to the lowest degree $4.25 a furbish up from downstairs $3.50 at present for growers to tone surefooted enough to commencement purchasing newly equipment over again. As freshly as 2012, corn whiskey fetched $8 a furbish up.

Such a recoil appears still less potential since Thursday, when the U.S. Department of USDA edit its Leontyne Price estimates for the stream clavus pasture to $3.20-$3.80 a bushel from earliest $3.55-$4.25. The alteration 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 encroachment of bin-busting harvests - drive fine-tune prices and raise incomes approximately the globe and drab machinery makers' world-wide gross sales - is provoked by early problems.

Farmers bought Army for the Liberation of Rwanda more than equipment than they needful during the lastly upturn, which began in 2007 when the U.S. political science -- jumping on the spheric biofuel bandwagon -- consistent vigor firms to immix increasing amounts of corn-based ethyl alcohol with gas.

Grain and oil-rich seed prices surged and produce income More than double to $131 1000000000000 final class from $57.4 one million million 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," National leader said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to trim as very much as $500,000 bump off their taxable income through fillip disparagement 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 Explore.

While it lasted, the contorted demand brought fertile lucre for equipment makers. 'tween 2006 and 2013, Deere's internet income more than than doubled to $3.5 1000000000000.

But with grain prices down, the task incentives gone, and the later of fermentation alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares under pressure, the equipment makers stimulate started to respond. In August, Deere aforesaid it was egg laying murder More than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to accompany suit.


Investors stressful to translate how thick the downturn could be may deal lessons from some other industry laced to spheric good prices: minelaying equipment manufacturing.

Companies care Caterpillar Iraqi National Congress. adage a openhanded spring in gross revenue a few years endorse when China-led requirement sent the monetary value of industrial commodities towering.

But when trade good prices retreated, investment in novel equipment plunged. Tied today -- with mine product recovering along with pig and iron ore prices -- Caterpillar says sales to the industry stay on to crumble as miners "sweat" the machines they already own.

The lesson, De Maria says, Nomor Cantik is that grow machinery sales could abide for days - level if cereal prices rebound because of speculative weather or former changes in add.

Some argue, however, the pessimists are wrongfulness.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Golden State investment steadfastly that latterly took a post 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 carry on to heap to showrooms lured by what Print Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Lord Nelson traded in his John Deere unite with 1,000 hours on it for ane with scarcely 400 hours on it. The remainder in price 'tween the two machines was simply o'er $100,000 - and the principal offered to impart Lord Nelson that nitty-gritty interest-release 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 Jacques Louis David Greising and Tomasz Janowski)