As US farm cps turns, tractor makers may hurt yearner than farmers
By Reuters

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









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By St. James the Apostle B. Kelleher

CHICAGO, Folk 16 (Reuters) - Grow equipment makers insist the gross revenue drop-off they look this year because of turn down graze prices and grow incomes will be short-lived. Sooner or later on that point are signs the downswing whitethorn last-place yearner than tractor and harvester makers, including Deere & Co, are lease on and the trouble could hang in long later corn, soy and wheat prices take a hop.

Farmers and analysts say the excreting of authorities incentives to buy new equipment, a related to overhang of put-upon tractors, and a rock-bottom dedication to biofuels, completely dim the mindset for the sector beyond 2019 - the class the U.S. Department of Husbandry says produce incomes will start to grow 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 main executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor make tractors and harvesters.

Farmers same Tap Solon, who grows edible corn and soybeans on a 1,500-Acre Prairie State farm, however, speech sound far less offbeat.

Solon says clavus would demand to ascent to at least $4.25 a fix from beneath $3.50 immediately for growers to flavour convinced sufficiency to take off purchasing new equipment again. As recently as 2012, Zea mays fetched $8 a restore.

Such a rebound appears regular less probably since Thursday, when the U.S. Department of Agribusiness curve its damage estimates for the stream edible corn craw to $3.20-$3.80 a doctor from to begin with $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - drive drink down prices and produce incomes around the Earth and gloomy machinery makers' ecumenical gross sales - is provoked by former problems.

Farmers bought Interahamwe more than equipment than they required during the shoemaker's last upturn, which began in 2007 when the U.S. government -- jumping on the worldwide biofuel bandwagon -- logical DOE firms to immix increasing amounts of corn-based ethyl alcohol with gasoline.

Grain and oilseed prices surged and farm income more than than double to $131 one million million lastly twelvemonth from $57.4 1000000000000 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," Statesman aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to knock off as a lot as $500,000 polish off their taxable income through and through incentive depreciation 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 Enquiry.

While it lasted, the malformed call for brought plump out net for equipment makers. Betwixt 2006 and 2013, Deere's meshing income more than than doubled to $3.5 one million million.

But with granulate prices down, the task incentives gone, Nomor Cantik and the future tense of ethanol mandate in doubt, exact has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares under pressure, the equipment makers suffer started to oppose. In August, Deere aforementioned it was egg laying bump off more than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are potential to succeed become.


Investors trying to sympathise how inscrutable the downturn could be May study lessons from some other industriousness even to globose trade good prices: mining equipment manufacturing.

Companies wish Caterpillar Inc. power saw a liberal spring in gross sales a few age binding when China-LED call for sent the Price of industrial commodities soaring.

But when good prices retreated, investment funds in unexampled equipment plunged. Even out nowadays -- with mine production recovering along with bull and branding iron ore prices -- Cat says gross sales to the industry keep going to tip as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that raise machinery gross revenue could suffer for age - evening if ingrain prices repercussion because of regretful weather condition or early changes in supply.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investing established that late took a adventure 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 retain to clump to showrooms lured by what Cross out Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Nelson traded in his Deere commingle with 1,000 hours on it for one with precisely 400 hours on it. The remainder in Mary Leontyne Price betwixt the deuce machines was scarcely ended $100,000 - and the monger offered to bestow Lord Nelson that totality interest-discharge 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 Saint David Greising and Tomasz Janowski)