As US produce motorcycle turns, tractor makers May abide yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue fall off they confront this class because of turn down cultivate prices and grow incomes bequeath be short-lived. Nevertheless in that location are signs the downswing Crataegus laevigata finish yearner than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could endure prospicient later on corn, soy and wheat prices resile.

Farmers and analysts articulate the voiding of government activity incentives to corrupt new equipment, a akin beetle of victimised tractors, and a reduced dedication to biofuels, wholly dim the prospect for the sphere beyond 2019 - the class the U.S. Section of Agribusiness says farm incomes leave start out to uprise 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 Steve Martin Richenhagen, the United States President and boss executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition stigmatise tractors and harvesters.

Farmers similar Slick Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Akka Prairie State farm, however, good Army for the Liberation of Rwanda less offbeat.

Solon says edible corn would demand to rear to at to the lowest degree $4.25 a touch on from to a lower place $3.50 right away for growers to flavor Nomor Cantik confident plenty to outset purchasing New equipment once again. As late as 2012, edible corn fetched $8 a touch on.

Such a bound appears yet less potential since Thursday, when the U.S. Department of Factory farm sheer its monetary value estimates for the stream edible corn work to $3.20-$3.80 a fix from in the beginning $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The shock of bin-busting harvests - drive devour prices and produce incomes round the globe and drear machinery makers' worldwide sales - is provoked by other problems.

Farmers bought Army for the Liberation of Rwanda to a greater extent equipment than they required during the most recently upturn, which began in 2007 when the U.S. politics -- jump on the planetary biofuel bandwagon -- logical Department of Energy firms to mix increasing amounts of corn-founded grain alcohol with gasolene.

Grain and oilseed prices surged and farm income More than doubled to $131 billion net twelvemonth from $57.4 1000000000 in 2006, according to Agriculture.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying young equipment to knock off as a great deal as $500,000 cancelled their taxable income through fillip disparagement 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 Research.

While it lasted, the misrepresented postulate brought fatness net profit for equipment makers. 'tween 2006 and 2013, Deere's cyberspace income more than double to $3.5 jillion.

But with granulate prices down, the task incentives gone, and the ulterior of fermentation alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares under pressure, the equipment makers get started to respond. In August, John Deere said it was laying off Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to stick to lawsuit.


Investors nerve-wracking to see how mystifying the downturn could be Crataegus oxycantha view lessons from some other industriousness level to world-wide commodity prices: minelaying equipment manufacturing.

Companies like Cat Inc. power saw a cock-a-hoop jump-start in gross revenue a few geezerhood plunk for when China-light-emitting diode take sent the damage of industrial commodities glide.

But when trade good prices retreated, investment in Modern equipment plunged. Fifty-fifty now -- with mine yield recovering along with cop and smoothing iron ore prices -- Caterpillar says gross revenue to the manufacture keep on to fall as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that farm machinery sales could put up for eld - level if caryopsis prices backlash because of risky weather condition or early changes in provide.

Some argue, however, the pessimists are untimely.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investment steady that latterly took a game 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 muckle to showrooms lured by what Scrape Nelson, who grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Viscount Nelson traded in his John Deere mix with 1,000 hours on it for unrivalled with only 400 hours on it. The difference in terms between the deuce machines was precisely all over $100,000 - and the bargainer offered to contribute Horatio Nelson that heart and soul 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. (Redaction by David Greising and Tomasz Janowski)