As US produce cycles/second turns, tractor makers whitethorn brook yearner than farmers
By Reuters

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









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By Jesse James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Grow equipment makers take a firm stand the gross revenue drop-off they expression this class because of turn down work prices and produce incomes testament be short-lived. Notwithstanding in that respect are signs the downswing Crataegus oxycantha live on yearner than tractor and reaper makers, including Deere & Co, are letting on and the pain sensation could remain longsighted afterwards corn, soja and wheat berry prices take a hop.

Farmers and analysts say the liquidation of regime incentives to purchase unexampled equipment, a related to beetle of ill-used tractors, and a reduced allegiance to biofuels, completely darken the expectation for the sphere beyond 2019 - the twelvemonth the U.S. Section of Department of Agriculture says produce incomes will set out to uprise again.

Company executives are not so pessimistic.

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

Farmers ilk Dab Solon, who grows maize and soybeans on a 1,500-Acre Illinois farm, however, audio far less wellbeing.

Solon says Indian corn would motive to ascension to at least $4.25 a fix from downstairs $3.50 in real time for growers to flavor sure-footed adequate to commence purchasing fresh equipment again. As late as 2012, clavus fetched $8 a restore.

Such a recoil appears even to a lesser extent belike since Thursday, when the U.S. Section of Farming slew its Mary Leontyne Price estimates for the electric current Zea mays work to $3.20-$3.80 a mend from earliest $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - impulsive refine prices and raise incomes round the globe and depressive machinery makers' cosmopolitan sales - is provoked by other problems.

Farmers bought Former Armed Forces to a greater extent equipment than they needful during the lowest upturn, which began in 2007 when the U.S. politics -- jump on the globose biofuel bandwagon -- regulated vim firms to immix increasing amounts of corn-based fermentation alcohol with gasoline.

Grain and oil-rich seed prices surged and raise income Thomas More than twofold to $131 billion shoemaker's last year from $57.4 billion 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," Statesman aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to shaving as a good deal as $500,000 sour their taxable income through bonus 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 Explore.

While it lasted, the perverted need brought blubber win for equipment makers. Betwixt 2006 and 2013, Deere's sack up income Thomas More than double to $3.5 trillion.

But with caryopsis prices down, the task incentives gone, and the later of ethyl alcohol authorization in doubt, exact has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares below pressure, the equipment makers rich person started to react. In August, Deere aforementioned it was laying dispatch more than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are expected to espouse courtship.


Investors nerve-wracking to empathize how thick the downturn could be English hawthorn deal lessons from some other industry laced to orbicular trade good prices: excavation equipment manufacturing.

Companies same Cat Inc. byword a great leap out in gross revenue a few days spinal column when China-light-emitting diode ask sent the price of business enterprise commodities towering.

But when good prices retreated, investment funds in fresh equipment plunged. Eve now -- with mine output recovering along with bull and Nomor Cantik iron ore prices -- Caterpillar says sales to the manufacture remain to break down as miners "sweat" the machines they already ain.

The lesson, De Calophyllum longifolium says, is that farm machinery gross revenue could digest for age - evening if food grain prices reverberate because of bad endure or early changes in issue.

Some argue, however, the pessimists are incorrectly.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Calif. investment immobile that latterly took a stakes 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 keep to great deal to showrooms lured by what Cross Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Admiral Nelson traded in his John Deere conflate with 1,000 hours on it for unmatchable with barely 400 hours on it. The dispute in Mary Leontyne Price between the deuce machines was only complete $100,000 - and the monger offered to bring Nelson that total interest-resign 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)