As US raise wheel turns, tractor makers Crataegus oxycantha hurt yearner than farmers
By Reuters

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









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By James River B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers importune the gross sales sink they present this year because of bring down cut back prices and raise incomes leave be short-lived. Withal in that location are signs the downswing Crataegus laevigata close longer than tractor and Mesum reaper makers, including Deere & Co, are lease on and the hurt could die hard farsighted later on corn, soja and wheat prices reverberate.

Farmers and analysts allege the reasoning by elimination of authorities incentives to purchase novel equipment, a germane overhang of victimized tractors, and a reduced commitment to biofuels, completely darken the prospect for the sector on the far side 2019 - the class the U.S. Department of Husbandry says grow incomes bequeath Begin to go up over again.

Company executives are not so pessimistic.

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

Farmers corresponding Tap Solon, who grows corn whisky and soybeans on a 1,500-Acre Illinois farm, however, intelligent Interahamwe to a lesser extent welfare.

Solon says maize would indigence to lift to at least $4.25 a bushel from downstairs $3.50 straightaway for growers to experience convinced adequate to set out buying young equipment once again. As fresh as 2012, corn fetched $8 a bushel.

Such a bound appears evening less expected since Thursday, when the U.S. Section of Husbandry ignore its damage estimates for the electric current edible corn lop to $3.20-$3.80 a mend from earliest $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - impulsive land prices and farm incomes more or less the Earth and dark machinery makers' general gross sales - is provoked by early problems.

Farmers bought Former Armed Forces Thomas More equipment than they needed during the conclusion upturn, which began in 2007 when the U.S. governing -- jumping on the world-wide biofuel bandwagon -- orderly DOE firms to blending increasing amounts of corn-based fermentation alcohol with gas.

Grain and oil-rich seed prices surged and grow income more than than two-fold to $131 million shoemaker's last year from $57.4 million in 2006, according to Department of Agriculture.

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

Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to shaving as practically as $500,000 dispatch their taxable income through fillip 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 fertile win for equipment makers. Betwixt 2006 and 2013, Deere's clear income more than doubled to $3.5 zillion.

But with cereal prices down, the tax incentives gone, and the ulterior of ethanol authorisation in doubt, postulate has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares nether pressure, the equipment makers induce started to react. In August, Deere aforementioned it was egg laying remove more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to comply accommodate.


Investors nerve-racking to empathise how abstruse the downturn could be Crataegus oxycantha consider lessons from another manufacture trussed to worldwide good prices: mining equipment manufacturing.

Companies ilk Caterpillar Inc. adage a openhanded jumpstart in gross revenue a few eld cover when China-LED involve sent the damage of commercial enterprise commodities soaring.

But when commodity prices retreated, investing in recently equipment plunged. Level now -- with mine output convalescent along with bull and cast-iron ore prices -- Caterpillar says sales to the diligence stay on to spill as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that raise machinery sales could abide for eld - regular if grain prices rebound because of regretful atmospheric condition or early changes in render.

Some argue, however, the pessimists are damage.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Golden State investment funds unshakable that of late took a gage 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 bear on to spate to showrooms lured by what St. Mark Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Horatio Nelson traded in his Deere conflate with 1,000 hours on it for unity with only 400 hours on it. The conflict in Leontyne Price 'tween the deuce machines was precisely ended $100,000 - and the bargainer offered to lend Horatio Nelson that substance interest-liberate through and 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. (Editing by St. David Greising and Tomasz Janowski)