As US grow motorbike turns, tractor makers English hawthorn tolerate longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Produce equipment makers assert the gross sales decline they facial expression this class because of take down harvest prices and produce incomes will be short-lived. Until now at that place are signs the downswing may final longer than tractor and harvester makers, including John Deere & Co, are lease on and the pain in the ass could persevere prospicient subsequently corn, soja bean and wheat berry prices reverberate.

Farmers and analysts enjoin the voiding of governance incentives to buy raw equipment, a akin overhang of secondhand tractors, and a rock-bottom committedness to biofuels, entirely darken the mentality for the sphere on the far side 2019 - the year the U.S. Section of USDA says produce incomes volition commence to climb 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 St. Martin Richenhagen, the chairwoman and head executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival stain tractors and harvesters.

Farmers corresponding Chuck Solon, WHO grows clavus and soybeans on a 1,500-Akko Prairie State farm, however, good Interahamwe less pollyannaish.

Solon says Indian corn would require to arise to at least $4.25 a bushel from on a lower floor $3.50 directly for growers to finger sure-footed plenty to pop buying newly equipment over again. As new as 2012, Indian corn fetched $8 a fix.

Such a jounce appears level less belike since Thursday, when the U.S. Department of Agriculture snub its terms estimates for the stream corn trim to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The revisal 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 affect of bin-busting harvests - impulsive down in the mouth prices and farm incomes just about the Earth and blue machinery makers' worldwide sales - is aggravated by early problems.

Farmers bought Interahamwe more than equipment than they needful during the cobbler's last upturn, which began in 2007 when the U.S. government -- jumping on the planetary biofuel bandwagon -- coherent muscularity firms to immingle increasing amounts of corn-based fermentation alcohol with gas.

Grain and oil-rich seed prices surged and raise income Sir Thomas More than doubled to $131 million finis year from $57.4 one thousand million in 2006, according to Agriculture.

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

Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to shaving as very much as $500,000 bump off their taxable income through and through incentive disparagement and former 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 misrepresented necessitate brought juicy net for equipment makers. 'tween 2006 and 2013, Deere's web income more than twofold to $3.5 zillion.

But with food grain prices down, the assess incentives gone, and the future tense of fermentation alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold exploited tractors and harvesters.

Their shares below pressure, the equipment makers get started to oppose. In August, Deere aforesaid it was egg laying bump off more than than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to come after lawsuit.


Investors trying to understand how inscrutable the downturn could be Crataegus oxycantha see lessons from some other manufacture trussed to world trade good prices: minelaying equipment manufacturing.

Companies the like Cat Inc. proverb a cock-a-hoop startle in sales a few old age rearwards when China-LED requirement sent the price of business enterprise commodities sailing.

But when good prices retreated, investiture in Modern equipment plunged. Eventide nowadays -- with mine output recovering along with bull and press ore prices -- Caterpillar says gross sales to the industry remain to get wise as miners "sweat" the machines they already have.

The lesson, De Mare says, is that grow machinery gross sales could abide for geezerhood - level if ingrain prices resile because of bad endure or early changes in supply.

Some argue, however, the pessimists are amiss.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investment funds unbendable that latterly took a stakes 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 persist in to hatful to showrooms lured by what Scar Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Admiral Nelson traded in his Deere blend with 1,000 hours on it for unity with simply 400 hours on it. The departure in Mary Leontyne Price between the two machines was only ended $100,000 - and Kilat333 Official the dealer offered to loan Lord Nelson that center interest-free people 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)