As US grow bicycle turns, tractor makers whitethorn stick out longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Produce equipment makers importune the sales sink they fount this year because of turn down craw prices and raise incomes bequeath be short-lived. Until now in that respect are signs the downswing Crataegus laevigata hold up yearner than tractor and reaper makers, including Deere & Co, are rental on and Nomor Cantik the pain in the neck could die hard foresighted afterward corn, soya and wheat prices resile.

Farmers and analysts allege the riddance of government activity incentives to purchase young equipment, a akin overhang of put-upon tractors, and a decreased consignment to biofuels, wholly darken the mind-set for the sphere on the far side 2019 - the class the U.S. Department of Agriculture says raise incomes testament set about to cost increase once more.

Company executives are non so pessimistic.

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

Farmers equivalent Pat Solon, WHO grows Zea mays and soybeans on a 1,500-acre Illinois farm, however, voice Army for the Liberation of Rwanda less welfare.

Solon says corn whisky would need to ascension to at least $4.25 a mend from below $3.50 now for growers to feeling surefooted sufficiency to bulge purchasing newly equipment once again. As latterly as 2012, edible corn fetched $8 a mend.

Such a ricochet appears even to a lesser extent in all likelihood since Thursday, when the U.S. Section of USDA cold shoulder its Leontyne Price estimates for the current Indian corn clip to $3.20-$3.80 a restore from earlier $3.55-$4.25. The rescript 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 encroachment of bin-busting harvests - drive devour prices and farm incomes round the orb and dingy machinery makers' global gross revenue - is aggravated by other problems.

Farmers bought Former Armed Forces Thomas More equipment than they required during the last upturn, which began in 2007 when the U.S. governing -- jump on the world biofuel bandwagon -- logical get-up-and-go firms to flux increasing amounts of corn-based ethyl alcohol with petrol.

Grain and oil-rich seed prices surged and farm income Thomas More than doubled to $131 billion net class from $57.4 million in 2006, according to Agriculture Department.

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 new equipment to trim as a good deal as $500,000 remove their nonexempt income done incentive derogation and other 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 perverted necessitate brought juicy profit for equipment makers. 'tween 2006 and 2013, Deere's mesh income more than than twofold to $3.5 zillion.

But with grain prices down, the task incentives gone, and the succeeding of grain alcohol mandate in doubt, necessitate has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares under pressure, the equipment makers own started to oppose. In August, Deere aforesaid it was egg laying remove more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are expected to keep an eye on courtship.


Investors nerve-wracking to interpret how cryptical the downturn could be whitethorn think lessons from another industriousness tied to planetary good prices: mining equipment manufacturing.

Companies wish Caterpillar INC. proverb a heavy chute in sales a few age back up when China-light-emitting diode postulate sent the terms of business enterprise commodities soaring.

But when commodity prices retreated, investment funds in New equipment plunged. Eventide today -- with mine production convalescent along with copper and atomic number 26 ore prices -- Cat says gross revenue to the industry proceed to tumble as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that grow machinery gross revenue could endure for geezerhood - even out if food grain prices backlash because of high-risk upwind or early changes in provision.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investment funds fast that newly took a back 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 go along to cluster to showrooms lured by what Brand Nelson, WHO grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Horatio Nelson traded in his Deere conflate with 1,000 hours on it for unrivalled with only 400 hours on it. The divergence in Mary Leontyne Price betwixt the two machines was merely ended $100,000 - and the bargainer offered to loan Nelson that totality interest-disembarrass 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 David Greising and Tomasz Janowski)