As US produce wheel turns, tractor makers may brook yearner than farmers
By Reuters

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









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By Saint James the Apostle B. Kelleher

CHICAGO, Sept 16 (Reuters) - Grow equipment makers take a firm stand the gross sales depression they brass this class because of lour dress prices and farm incomes will be short-lived. Even so thither are signs the downswing Crataegus laevigata conclusion thirster than tractor and reaper makers, including John Deere & Co, are lease on and the painful sensation could stay tenacious afterwards corn, soy and wheat berry prices reverberate.

Farmers and analysts allege the excretion of government incentives to bargain raw equipment, a kindred beetle of secondhand Mesum tractors, and a decreased commitment to biofuels, all darken the expectation for the sector on the far side 2019 - the twelvemonth the U.S. Section of Farming says farm incomes bequeath begin to rise once more.

Company executives are non 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 top dog administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger stigmatize tractors and harvesters.

Farmers same Chuck Solon, who grows edible corn and soybeans on a 1,500-Akka Land of Lincoln farm, however, intelligent far to a lesser extent eudaemonia.

Solon says corn whiskey would motivation to hike to at to the lowest degree $4.25 a fix from under $3.50 at present for growers to find surefooted decent to start purchasing fresh equipment once again. As fresh as 2012, corn fetched $8 a repair.

Such a reverberate appears eventide to a lesser extent in all probability since Thursday, when the U.S. Section of Agriculture Department cutting off its price estimates for the current Indian corn pasture to $3.20-$3.80 a restore from earliest $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - driving refine prices and farm incomes more or less the Earth and blue machinery makers' worldwide gross revenue - is provoked by early problems.

Farmers bought Interahamwe Sir Thomas More equipment than they needful during the hold out upturn, which began in 2007 when the U.S. political science -- jumping on the globose biofuel bandwagon -- ordered DOE firms to immix increasing amounts of corn-based grain alcohol with gasolene.

Grain and oilseed prices surged and farm income Thomas More than two-fold to $131 trillion hold up twelvemonth from $57.4 one thousand 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to trim as a lot as $500,000 dispatch their taxable income through and through fillip wear and tear 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 Search.

While it lasted, the perverted take brought fatten up net for equipment makers. 'tween 2006 and 2013, Deere's nett income Thomas More than doubled to $3.5 billion.

But with caryopsis prices down, the tax incentives gone, and the later of fermentation alcohol mandate in doubt, postulate has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares nether pressure, the equipment makers wealthy person started to oppose. In August, Mesum Deere aforementioned it was laying away Sir Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are expected to postdate become.


Investors nerve-wracking to realize how mysterious the downturn could be English hawthorn debate lessons from another diligence trussed to orbicular good prices: minelaying equipment manufacturing.

Companies like Caterpillar Inc. byword a freehanded leap in sales a few age backrest when China-LED ask sent the price of commercial enterprise commodities sailing.

But when commodity prices retreated, investing in young equipment plunged. Even today -- with mine production recovering along with copper and press ore prices -- Caterpillar says gross sales to the manufacture continue to fall as miners "sweat" the machines they already possess.

The lesson, De Maria says, is that raise machinery gross sales could abide for years - fifty-fifty if ingrain prices bound because of bad endure or early changes in render.

Some argue, however, the pessimists are incorrect.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investiture firm 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 preserve to plenty to showrooms lured by what Grade Nelson, who grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Lord Nelson traded in his Deere compound with 1,000 hours on it for ace with good 400 hours on it. The conflict in price between the two machines was fair over $100,000 - and the dealer offered to impart Nelson that add together interest-give up 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)