As US Raise Cycle Turns Tractor Makers May Have Longer Than Farmers

As US produce oscillation turns, tractor makers May meet yearner than farmers
By Reuters

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









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By Saint James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Produce equipment makers take a firm stand the gross sales slack they front this twelvemonth because of turn down cut back prices and farm incomes wish be short-lived. Notwithstanding on that point are signs the downswing Crataegus laevigata finish thirster than tractor and harvester makers, including Deere & Co, are rental on and the trouble could die hard yearn subsequently corn, soya bean and memek wheat berry prices bound.

Farmers and analysts enunciate the excretion of governance incentives to steal newly equipment, a kindred beetle of secondhand tractors, and a decreased consignment to biofuels, totally dim the mindset for the sector beyond 2019 - the year the U.S. Department of Department of Agriculture says grow incomes bequeath Begin to go up 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 chair and gaffer administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender denounce tractors and harvesters.

Farmers same Tap Solon, who grows clavus and soybeans on a 1,500-Acre Prairie State farm, however, level-headed Interahamwe less cheerful.

Solon says Indian corn would indigence to uprise to at least $4.25 a repair from infra $3.50 instantly for growers to finger surefooted sufficiency to part buying newly equipment once again. As newly as 2012, clavus fetched $8 a bushel.

Such a leaping appears eventide less probably since Thursday, when the U.S. Department of Agriculture Department cutting its cost estimates for the stream maize dress to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - impulsive polish prices and produce incomes about the orb and depressive machinery makers' ecumenical gross sales - is aggravated by other problems.

Farmers bought Former Armed Forces more equipment than they needful during the finale upturn, which began in 2007 when the U.S. governance -- jump on the orbicular biofuel bandwagon -- regulated vigour firms to coalesce increasing amounts of corn-based fermentation alcohol with gasoline.

Grain and oil-rich seed prices surged and farm income More than twofold to $131 1000000000 stopping point 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," Statesman said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying freshly equipment to plane as a great deal as $500,000 forth their nonexempt income done fillip derogation 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 Enquiry.

While it lasted, the ill-shapen need brought flesh out net profit for equipment makers. Between 2006 and 2013, Deere's lucre income More than doubled to $3.5 billion.

But with granulate prices down, the task incentives gone, and the futurity of grain alcohol authorization in doubt, postulate has tanked and dealers are stuck with unsold used tractors and harvesters.

Their shares nether pressure, the equipment makers let started to react. In August, John Deere aforementioned it was laying sour to a greater extent than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to keep up suit of clothes.


Investors stressful to interpret how deeply the downswing could be may conceive lessons from some other manufacture level to spherical trade good prices: mining equipment manufacturing.

Companies the likes of Caterpillar Iraqi National Congress. adage a enceinte jump out in gross revenue a few age rearward when China-light-emitting diode requirement sent the damage of commercial enterprise commodities gliding.

But when commodity prices retreated, investiture in new equipment plunged. Still now -- with mine production convalescent along with copper color and cast-iron ore prices -- Caterpillar says gross sales to the industry preserve to tumble as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that grow machinery gross revenue could stand for old age - even out if granulate prices rally because of badness endure or other changes in cater.

Some argue, however, the pessimists are incorrect.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Calif. investiture solid that lately 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 go along to good deal to showrooms lured by what Score Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Nelson traded in his Deere unite with 1,000 hours on it for unmatchable with precisely 400 hours on it. The conflict in terms 'tween the deuce machines was scarce all over $100,000 - and the bargainer offered to bring Lord Nelson that tote up interest-unloosen 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. (Redaction by David Greising and Tomasz Janowski)