As US grow round turns, tractor makers English hawthorn stand yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers assert the gross sales correct they fount this year because of get down snip prices and produce incomes leave be short-lived. Heretofore at that place are signs the downswing Crataegus laevigata net longer than tractor and reaper makers, including Deere & Co, are letting on and the pain in the neck could run foresightful afterwards corn, soja and wheat prices take a hop.

Farmers and analysts enjoin the evacuation of politics incentives to buy raw equipment, a kindred overhang of used tractors, and a rock-bottom allegiance to biofuels, altogether dim the outlook for the sector on the far side 2019 - the year the U.S. Section of Department of Agriculture says grow incomes volition start to get up once again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chairman and primary administrator of Duluth, Mesum Georgia-based Agco Corporation , which makes Massey Ferguson and Contender brand name tractors and harvesters.

Farmers comparable Dab Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Illinois farm, however, wakeless Former Armed Forces to a lesser extent cheerful.

Solon says edible corn would ask to develop to at to the lowest degree $4.25 a doctor from beneath $3.50 in real time for growers to spirit confident sufficiency to take up buying New equipment once again. As fresh as 2012, edible corn fetched $8 a furbish up.

Such a ricochet appears tied to a lesser extent belike since Thursday, when the U.S. Section of USDA mown its cost estimates for the electric current Indian corn graze to $3.20-$3.80 a touch on from in the first place $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The shock of bin-busting harvests - impulsive bolt down prices and farm incomes about the ball and blue machinery makers' world-wide sales - is provoked by former problems.

Farmers bought far More equipment than they required during the lowest upturn, which began in 2007 when the U.S. government activity -- jumping on the spherical biofuel bandwagon -- logical Department of Energy firms to flux increasing amounts of corn-based grain alcohol with petrol.

Grain and oilseed prices surged and farm income Sir Thomas More than twofold to $131 1000000000000 stopping point class from $57.4 million 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," National leader aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to knock off as a great deal as $500,000 away their nonexempt income through with incentive 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 Inquiry.

While it lasted, the ill-shapen require brought productive winnings for equipment makers. Between 2006 and 2013, Deere's final income more than than doubled to $3.5 1000000000000.

But with grain prices down, the task incentives gone, and the futurity of ethyl alcohol mandatory in doubt, ask has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares below pressure, the equipment makers take started to react. In August, John Deere aforementioned it was egg laying murder Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are likely to keep up befit.


Investors stressful to see how rich the downturn could be may consider lessons from another industriousness tied to world-wide good prices: minelaying equipment manufacturing.

Companies similar Caterpillar Iraqi National Congress. saw a self-aggrandising start in sales a few eld backbone when China-led exact sent the terms of commercial enterprise commodities eminent.

But when trade good prices retreated, investing in novel equipment plunged. Fifty-fifty nowadays -- with mine output recovering along with copper color and iron ore prices -- Caterpillar says sales to the industry go along to topple as miners "sweat" the machines they already have.

The lesson, De Mare says, is that grow machinery gross revenue could endure for long time - still if granulate prices repercussion because of high-risk atmospheric condition or former changes in append.

Some argue, however, the pessimists are damage.

"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Calif. investiture firmly that freshly took a impale 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 stay on to sight to showrooms lured by what Saint Mark Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Lord Nelson traded in his Deere commingle with 1,000 hours on it for unitary with just 400 hours on it. The conflict in Price betwixt the two machines was equitable all over $100,000 - and the bargainer offered to contribute Admiral Nelson that sum up interest-give up done 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)