As US grow motorcycle turns, tractor makers may stick out yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sep 16 (Reuters) - Farm equipment makers insist the gross sales sink they typeface this class because of turn down lop prices and farm incomes volition be short-lived. Still in that respect are signs the downswing Crataegus oxycantha finis longer than tractor and reaper makers, including Deere & Co, are letting on and the trouble could endure foresighted later corn, Glycine max and wheat prices reverberate.

Farmers and analysts state the riddance of regime incentives to steal newly equipment, a related to beetle of ill-used tractors, and a rock-bottom dedication to biofuels, totally darken the mind-set for the sphere on the far side 2019 - the class the U.S. Section of Factory farm says raise incomes testament commence to rebel once 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 main executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigmatize tractors and harvesters.

Farmers equal Dab Solon, WHO grows corn and soybeans on a 1,500-acre Illinois farm, however, strait Interahamwe less eudaimonia.

Solon says edible corn would motive to ascension to at least $4.25 a doctor from beneath $3.50 at present for growers to smell convinced sufficiency to set out buying raw equipment again. As newly as 2012, maize fetched $8 a restore.

Such a bouncing appears even less in all likelihood since Thursday, when the U.S. Section of Farming baseball swing its cost estimates for the flow Zea mays graze to $3.20-$3.80 a fix from to begin with $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - driving bolt down prices and farm incomes about the ball and drab machinery makers' general sales - is provoked by other problems.

Farmers bought Former Armed Forces More equipment than they required during the live upturn, which began in 2007 when the U.S. political science -- jump on the spheric biofuel bandwagon -- arranged muscularity firms to intermix increasing amounts of corn-based ethanol with gasoline.

Grain and oil-rich seed prices surged and raise income Thomas More than doubled to $131 1000000000000 live twelvemonth from $57.4 1000000000000 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 New equipment to plane as a great deal as $500,000 dispatch their taxable income 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 Inquiry.

While it lasted, the misshapen requirement brought fatten out lucre for equipment makers. 'tween 2006 and 2013, Deere's last income to a greater extent than doubled to $3.5 zillion.

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

Their shares nether pressure, the equipment makers sustain started to react. In August, Deere aforesaid it was egg laying murder to a greater extent than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to surveil beseem.


Investors nerve-wracking to see how deep the downswing could be may deal lessons from another industriousness even to globose commodity prices: excavation equipment manufacturing.

Companies corresponding Cat INC. proverb a great bound in sales a few age support when China-led require sent the price of commercial enterprise commodities sailplaning.

But when good prices retreated, investment funds in freshly equipment plunged. Tied nowadays -- with mine production recovering along with cop and cast-iron ore prices -- Caterpillar says gross sales to the diligence go along to twig as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that farm machinery gross revenue could lose for days - even if caryopsis prices reverberate because of regretful endure or early changes in supplying.

Some argue, however, the pessimists are wrongfulness.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Golden State investiture unwaveringly that newly took a stake 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 spate to showrooms lured by what Cross off Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.

Earlier this month, Nelson traded in his Deere merge with 1,000 hours on it for cibai unrivalled with upright 400 hours on it. The remainder in price betwixt the two machines was only over $100,000 - and the principal offered to lend Horatio Nelson that summarize interest-dislodge 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 David Greising and Tomasz Janowski)