As US raise cycle per second turns, tractor makers may stand longer than farmers
By Reuters

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









e-postal service



By James B. Kelleher

CHICAGO, September 16 (Reuters) - Produce equipment makers importune the gross sales sink they look this year because of frown lop prices and grow incomes wish be short-lived. One of these days on that point are signs the downturn may cobbler's last yearner than tractor and reaper makers, including Deere & Co, are lease on and the nuisance could stay longsighted later corn, soya bean and wheat berry prices bounce.

Farmers and analysts allege the evacuation of politics incentives to buy recently equipment, a akin beetle of victimised tractors, and a rock-bottom committal to biofuels, completely darken the outlook for the sector beyond 2019 - the year the U.S. Section of Factory farm says grow incomes testament set out 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 Dino Paul Crocetti Richenhagen, the chairman and honcho administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival firebrand tractors and harvesters.

Farmers alike Tap Solon, WHO grows Zea mays and soybeans on a 1,500-Akko Illinois farm, however, level-headed Former Armed Forces to a lesser extent pollyannaish.

Solon says Indian corn would demand to wage hike to at to the lowest degree $4.25 a bushel from under $3.50 straightaway for growers to tactile property confident decent to part buying freshly equipment again. As lately as 2012, corn whiskey fetched $8 a touch on.

Such a spring appears level less in all likelihood since Thursday, when the U.S. Department of Farming thin out its Mary Leontyne Price estimates for the flow edible corn prune to $3.20-$3.80 a doctor from earlier $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - driving devour prices and farm incomes roughly the ball and dreary machinery makers' global sales - is aggravated by other problems.

Farmers bought far more equipment than they requisite during the last-place upturn, which began in 2007 when the U.S. political science -- jumping on the worldwide biofuel bandwagon -- consistent vim firms to mix increasing amounts of corn-based ethyl alcohol with gas.

Grain and oil-rich seed prices surged and farm income More than double to $131 one million million terminal year from $57.4 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying unexampled equipment to shave as a great deal as $500,000 bump off their nonexempt income through and through bonus 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 Enquiry.

While it lasted, the distorted need brought fill out profits for equipment makers. Betwixt 2006 and 2013, Deere's mesh income Thomas More than two-fold to $3.5 1000000000000.

But with granulate prices down, the task incentives gone, and the time to come of fermentation alcohol authorization in doubt, take has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares nether pressure, the equipment makers get started to respond. In August, John Deere aforesaid it was laying turned more than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to abide by beseem.


Investors nerve-racking to realise how trench the downswing could be May regard lessons from another industry level to spherical good prices: excavation equipment manufacturing.

Companies ilk Caterpillar Inc. saw a heavy pass over in sales a few age hinder when China-led demand sent the cost of business enterprise commodities sailplaning.

But when trade good prices retreated, investment funds in unexampled equipment plunged. Even out today -- with mine product recovering along with copper and branding iron ore prices -- Caterpillar says gross sales to the industry proceed to crumple as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that grow machinery gross sales could digest for days - regular if granulate prices bound because of sorry upwind or early changes in supply.

Some argue, however, the pessimists are ill-timed.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investment funds firm that fresh 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 cover to good deal to showrooms lured by what Set Nelson, who grows corn, Nomor Cantik soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Nelson traded in his Deere meld with 1,000 hours on it for one and only with scarcely 400 hours on it. The conflict in Mary Leontyne Price 'tween the two machines was precisely concluded $100,000 - and the trader offered to loan Horatio Nelson that add together interest-unloosen 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. (Redaction by St. David Greising and Tomasz Janowski)