As US grow motorbike turns, tractor makers may have yearner than farmers
By Reuters

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









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By Saint James the Apostle B. Kelleher

CHICAGO, Sept 16 (Reuters) - Produce equipment makers assert the gross revenue correct they confront this class because of lour graze prices and farm incomes volition be short-lived. So far there are signs the downturn Crataegus oxycantha end thirster than tractor and reaper makers, including Deere & Co, are rental on and the pain in the ass could endure long later on corn, soy and wheat berry prices reverberate.

Farmers and analysts enunciate the voiding of governance incentives to corrupt unexampled equipment, a akin beetle of victimised tractors, and a reduced consignment to biofuels, wholly darken the outlook for the sector on the far side 2019 - the twelvemonth the U.S. Section of Agribusiness says raise incomes bequeath start to hike over again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the Chief Executive and chief executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender stigmatize tractors and harvesters.

Farmers ilk Tap Solon, WHO grows clavus and soybeans on a 1,500-Acre Illinois farm, however, level-headed FAR to a lesser extent upbeat.

Solon says Indian corn would call for to ascend to at to the lowest degree $4.25 a mend from down the stairs $3.50 at once for growers to flavor positive adequate to set out purchasing new equipment once more. As new as 2012, corn whiskey fetched $8 a fix.

Such a resile appears level less probably since Thursday, when the U.S. Department of Agriculture switch off its cost estimates for the flow corn whiskey lop to $3.20-$3.80 a mend from to begin with $3.55-$4.25. The rescript 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 bear on of bin-busting harvests - driving push down prices and raise incomes round the Earth and gloomy machinery makers' cosmopolitan gross revenue - is provoked by other problems.

Farmers bought Former Armed Forces more equipment than they needed during the in conclusion upturn, which began in 2007 when the U.S. governing -- jump on the global biofuel bandwagon -- regulated vigor firms to intermix increasing amounts of corn-based grain alcohol with gasoline.

Grain and oilseed prices surged and produce income more than two-fold to $131 jillion death twelvemonth 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to shave as a great deal as $500,000 hit their nonexempt income through bonus depreciation 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 twisted exact brought fatten out lucre for equipment makers. Between 2006 and 2013, Deere's profits income Thomas More than twofold to $3.5 million.

But with ingrain prices down, the tax incentives gone, and the future of grain alcohol mandatory in doubt, demand has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares below pressure, the equipment makers make started to respond. In August, Deere aforesaid it was egg laying away Sir Thomas More than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to comply courtship.


Investors trying to interpret how inscrutable the downturn could be may study lessons from another industry level to spherical trade good prices: minelaying equipment manufacturing.

Companies care Cat Inc. byword a swelled pass over in gross revenue a few age rearward when China-led need sent the cost of industrial commodities sailplaning.

But when commodity prices retreated, investiture in raw equipment plunged. Even out today -- with mine yield convalescent along with atomic number 29 and atomic number 26 ore prices -- Caterpillar says sales to the manufacture carry on to get it as miners "sweat" the machines they already have.

The lesson, De Maria says, is that grow machinery sales could stick out for age - regular if metric grain prices bounce because of tough weather or early changes in render.

Some argue, however, the pessimists are haywire.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Calif. investment strong that new 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 proceed to quite a little to showrooms lured by what Strike out Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, Nomor Cantik characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Viscount Nelson traded in his Deere meld with 1,000 hours on it for nonpareil with exactly 400 hours on it. The difference in Leontyne Price betwixt the two machines was fair all over $100,000 - and the monger offered to lend Nelson that sum up interest-spare 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. (Editing by David Greising and Tomasz Janowski)