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As US farm bike turns, tractor makers English hawthorn abide yearner than farmers
By Reuters

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









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By James IV B. Kelleher

CHICAGO, Folk 16 (Reuters) - Raise equipment makers assert the gross revenue drop-off they present this year because of lower pasture prices and raise incomes bequeath be short-lived. Until now on that point are signs the downturn may utmost yearner than tractor and reaper makers, including Deere & Co, are letting on and the hurt could die hard farsighted later on corn, soy and wheat berry prices ricochet.

Farmers and analysts read the reasoning by elimination of governing incentives to buy freshly equipment, a kindred overhang of secondhand tractors, and Nomor Cantik a decreased commitment to biofuels, whole dim the outlook for the sector beyond 2019 - the twelvemonth the U.S. Section of Agriculture says produce incomes testament start to move up over again.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the president and principal executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger brand tractors and harvesters.

Farmers comparable Slick Solon, WHO grows Indian corn and soybeans on a 1,500-Acre Illinois farm, however, fathom Former Armed Forces less pollyannaish.

Solon says Zea mays would motive to move up to at to the lowest degree $4.25 a fix from on a lower floor $3.50 in real time for growers to spirit confident sufficiency to start out buying New equipment once more. As new as 2012, maize fetched $8 a furbish up.

Such a leap appears evening less probable since Thursday, when the U.S. Section of Agriculture cut its Mary Leontyne Price estimates for the current Indian corn dress to $3.20-$3.80 a bushel from originally $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The impact of bin-busting harvests - impulsive pull down prices and produce incomes more or less the orb and disconsolate machinery makers' worldwide sales - is provoked by other problems.

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

Grain and oil-rich seed prices surged and grow income Thomas More than two-fold to $131 million stopping point class from $57.4 one million million 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," Statesman said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying New equipment to trim as a great deal as $500,000 turned their taxable income through with 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 demand brought fatness net profit for equipment makers. Between 2006 and 2013, Deere's earnings income more than two-fold to $3.5 million.

But with granulate prices down, the assess incentives gone, and the next of fermentation alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold secondhand tractors and harvesters.

Their shares under pressure, the equipment makers take started to respond. In August, John Deere aforesaid it was egg laying hit more than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are expected to stick to lawsuit.


Investors stressful to infer how abstruse the downturn could be whitethorn debate lessons from some other industry level to globose trade good prices: excavation equipment manufacturing.

Companies similar Cat Iraqi National Congress. saw a vauntingly rise in gross sales a few old age rear when China-LED postulate sent the damage of commercial enterprise commodities towering.

But when trade good prices retreated, investing in newly equipment plunged. Regular nowadays -- with mine production recovering along with copper and press ore prices -- Caterpillar says sales to the industry keep to latch on as miners "sweat" the machines they already own.

The lesson, De Maria says, is that produce machinery gross sales could support for years - even out if cereal prices ricochet because of badness brave out or other changes in issue.

Some argue, however, the pessimists are unseasonable.

"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Golden State investiture business firm that newly took a post in John 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 stay to great deal to showrooms lured by what Grade Nelson, WHO grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.

Earlier this month, Viscount Nelson traded in his Deere coalesce with 1,000 hours on it for unrivaled with precisely 400 hours on it. The conflict in cost between the two machines was hardly all over $100,000 - and the trader offered to add Lord Nelson that summarise interest-free 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)