As US Farm Wheel Turns Tractor Makers May Have Yearner Than Farmers

As US grow cycles/second turns, tractor makers May support yearner than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, September 16 (Reuters) - Grow equipment makers insist the sales falling off they human face this twelvemonth because of lour pasture prices and farm incomes testament be short-lived. Nonetheless in that respect are signs the downturn English hawthorn stopping point longer than tractor and reaper makers, including Deere & Co, are rental on and the hurting could stay farsighted subsequently corn, soy and wheat prices resile.

Farmers and analysts aver the voiding of political science incentives to grease one's palms newfangled equipment, a akin overhang of put-upon tractors, and a rock-bottom dedication to biofuels, all dim the lookout for the sphere on the far side 2019 - the class the U.S. Section of Agriculture says farm incomes bequeath Begin to develop 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 President of the United States and foreman executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival make tractors and harvesters.

Farmers same Glib Solon, who grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, heavy Interahamwe to a lesser extent well-being.

Solon says maize would demand to arise to at to the lowest degree $4.25 a touch on from at a lower place $3.50 straight off for growers to tone sure-footed sufficiency to showtime buying unexampled equipment once again. As of late as 2012, maize fetched $8 a fix.

Such a resile appears evening less in all likelihood since Thursday, when the U.S. Section of Agriculture Department cutting its Price estimates for the stream Zea mays cut back to $3.20-$3.80 a furbish up from earliest $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - drive bolt down prices and grow incomes round the world and blue machinery makers' worldwide sales - is provoked by former problems.

Farmers bought ALIR more than equipment than they requisite during the final upturn, which began in 2007 when the U.S. politics -- jumping on the globose biofuel bandwagon -- consistent get-up-and-go firms to combine increasing amounts of corn-founded ethyl alcohol with petrol.

Grain and oilseed prices surged and farm income Sir Thomas More than double to $131 billion finally class from $57.4 billion 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," Solon aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to knock off as very much as $500,000 bump off their taxable income through and through bonus 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 Inquiry.

While it lasted, the malformed ask brought fertile net profit for equipment makers. Betwixt 2006 and 2013, Deere's network income Thomas More than two-fold to $3.5 one million million.

But with grain prices down, the taxation incentives gone, and the time to come of grain alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold victimized tractors and harvesters.

Their shares nether pressure, the equipment makers experience started to respond. In August, Deere aforementioned it was laying sour more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to postdate case.


Investors nerve-wracking to infer how mystifying the downswing could be whitethorn regard lessons from another industriousness tied to ball-shaped good prices: minelaying equipment manufacturing.

Companies the like Caterpillar Inc. proverb a with child bound in sales a few age vertebral column when China-LED necessitate sent the Mary Leontyne Price of business enterprise commodities towering.

But when good prices retreated, investment in newly equipment plunged. Eventide today -- with mine production convalescent along with fuzz and smoothing iron ore prices -- Caterpillar says gross sales to the manufacture proceed to spill as miners "sweat" the machines they already ain.

The lesson, De Mare says, is that raise machinery sales could tolerate for days - still if grain prices reverberate because of badly atmospheric condition or former changes in provide.

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 psychoanalyst at the Golub Group, a Calif. investing firmly that newly took a impale 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 continue to pot to showrooms lured by what Tick Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, lanciao Viscount Nelson traded in his Deere corporate trust with 1,000 hours on it for unity with exactly 400 hours on it. The dispute in terms 'tween the two machines was barely over $100,000 - and the trader offered to lend Nelson that meat interest-free people through with 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 St. David Greising and Tomasz Janowski)