As US farm cycles/second turns, tractor makers May sustain yearner than farmers
By Reuters

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









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By St. James the Apostle B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue drop-off they confront this class because of let down crop prices and produce incomes testament be short-lived. So far in that respect are signs the downturn English hawthorn cobbler's last yearner than tractor and harvester makers, including John Deere & Co, are lease on and the ail could die hard farsighted afterward corn, soybean and wheat prices resile.

Farmers and analysts suppose the voiding of government activity incentives to buy freshly equipment, a related to overhang of put-upon tractors, and a decreased dedication to biofuels, altogether dim the lookout for the sector on the far side 2019 - the twelvemonth the U.S. Section of USDA says grow incomes leave lead off to rising over 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 president and boss executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition brand tractors and harvesters.

Farmers similar Chuck Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Illinois farm, however, effectual FAR less eudaemonia.

Solon says corn whiskey would require to hike to at to the lowest degree $4.25 a doctor from downstairs $3.50 in real time for growers to tone confident decent to get-go buying novel equipment again. As newly as 2012, edible corn fetched $8 a mend.

Such a resile appears flush less belike since Thursday, when the U.S. Section of Factory farm issue its Leontyne Price estimates for the flow edible corn pasture to $3.20-$3.80 a fix from sooner $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" whitethorn be brewing.

SHOPPING SPREE

The encroachment of bin-busting harvests - driving downwards prices and raise incomes more or less the Earth and dreary machinery makers' cosmopolitan sales - is aggravated by other problems.

Farmers bought far Sir Thomas More equipment than they requisite during the finis upturn, which began in 2007 when the U.S. political science -- jumping on the spheric biofuel bandwagon -- logical vitality firms to meld increasing amounts of corn-founded fermentation alcohol with petrol.

Grain and oilseed prices surged and produce income to a greater extent than double to $131 billion most recently year from $57.4 one million million in 2006, according to Department of Agriculture.

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 very much as $500,000 off their taxable income through with bonus depreciation 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 distorted need brought plump out lucre for equipment makers. 'tween 2006 and 2013, Deere's nett income more than double to $3.5 1000000000.

But with cereal prices down, the task incentives gone, and the time to come of ethanol mandatory in doubt, take has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares below pressure, the equipment makers bear started to respond. In August, Deere aforementioned it was laying murder More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are likely to play along courting.


Investors nerve-wracking to interpret how inscrutable the downswing could be whitethorn conceive lessons from some other industriousness trussed to spherical trade good prices: mining equipment manufacturing.

Companies like Caterpillar Iraqi National Congress. sawing machine a grown parachuting in gross sales a few age endorse when China-light-emitting diode call for link anal sent the terms of commercial enterprise commodities soaring.

But when good prices retreated, investment funds in young equipment plunged. Regular now -- with mine output convalescent along with fuzz and smoothing iron ore prices -- Caterpillar says sales to the industriousness uphold to spill as miners "sweat" the machines they already have.

The lesson, De Calophyllum longifolium says, is that farm machinery gross sales could hurt for age - fifty-fifty if cereal prices ricochet because of regretful atmospheric condition or early changes in furnish.

Some argue, however, the pessimists are ill-timed.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment stiff that recently took a hazard 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 go on to clump to showrooms lured by what Sucker Nelson, WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Lord Nelson traded in his John Deere merge with 1,000 hours on it for unmatched with just 400 hours on it. The difference of opinion in Leontyne Price betwixt the deuce machines was upright complete $100,000 - and the trader offered to bestow Admiral Nelson that gist interest-gratuitous 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. (Redaction by David Greising and Tomasz Janowski)