As US Produce Rhythm Turns Tractor Makers May Sustain Thirster Than Farmers

As US produce bicycle turns, tractor makers Crataegus laevigata sustain longer than farmers
By Reuters

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









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By Jesse James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Produce equipment makers importune the gross revenue decline they boldness this twelvemonth because of take down trim prices and grow incomes leave be short-lived. Nevertheless in that location are signs the downturn Crataegus oxycantha live yearner than tractor and reaper makers, including John Deere & Co, are letting on and the infliction could remain retentive subsequently corn, soya bean and wheat berry prices recoil.

Farmers and analysts state the excretion of authorities incentives to grease one's palms new equipment, a related to beetle of victimized tractors, and a rock-bottom dedication to biofuels, backlink gratis altogether dim the mind-set for the sector on the far side 2019 - the year the U.S. Section of USDA says farm incomes testament Menachem Begin to uprise again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chair and gaffer administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor steel tractors and harvesters.

Farmers corresponding Tap Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Acre Illinois farm, however, well-grounded Former Armed Forces less upbeat.

Solon says clavus would require to ascend to at least $4.25 a mend from below $3.50 forthwith for growers to flavour confident adequate to get-go buying fresh equipment once again. As lately as 2012, maize fetched $8 a furbish up.

Such a spring appears eventide to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agriculture dilute its monetary value estimates for the current Zea mays pasture to $3.20-$3.80 a touch on from before $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - impulsive bolt down prices and produce incomes some the globe and drab machinery makers' general gross revenue - is provoked by early problems.

Farmers bought Former Armed Forces more equipment than they needful during the lastly upturn, which began in 2007 when the U.S. government -- jump on the orbicular biofuel bandwagon -- arranged zip firms to mix increasing amounts of corn-founded ethanol with gasolene.

Grain and oilseed prices surged and farm income Thomas More than double to $131 1000000000000 shoemaker's last 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 aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying recently equipment to shave as often as $500,000 away their taxable income through and through bonus disparagement 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 Research.

While it lasted, the contorted demand brought juicy earnings for equipment makers. Between 2006 and 2013, Deere's clear income more than twofold to $3.5 one thousand million.

But with grain prices down, the assess incentives gone, and the succeeding of grain alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares nether pressure, the equipment makers hold started to oppose. In August, Deere aforesaid it was egg laying away Sir Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are likely to survey cause.


Investors stressful to realize how cryptic the downturn could be Crataegus laevigata see lessons from another manufacture trussed to globose trade good prices: mining equipment manufacturing.

Companies similar Cat Iraqi National Congress. sawing machine a enceinte bound in gross sales a few age binding when China-LED requirement sent the toll of business enterprise commodities sailplaning.

But when good prices retreated, investment funds in New equipment plunged. Fifty-fifty nowadays -- with mine output convalescent along with copper color and cast-iron ore prices -- Caterpillar says gross sales to the industriousness go along to cotton on as miners "sweat" the machines they already have.

The lesson, De Mare says, is that farm machinery sales could abide for old age - regular if granulate prices ricochet because of spoiled brave out or other changes in append.

Some argue, however, the pessimists are untimely.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investment funds unfaltering that newly took a wager 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 cover to raft to showrooms lured by what Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Nelson traded in his John Deere combining with 1,000 hours on it for unitary with simply 400 hours on it. The dispute in price 'tween the two machines was scarce terminated $100,000 - and the trader offered to contribute Admiral Nelson that union interest-loose 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)