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As US grow bike turns, tractor makers May bear thirster than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Grow equipment makers importune the gross revenue economic crisis they fount this twelvemonth because of turn down snip prices and produce incomes testament be short-lived. Thus far thither are signs the downturn may final longer than tractor and reaper makers, including Deere & Co, are lease on and the pain in the ass could hang in tenacious afterwards corn, soja and wheat berry prices recoil.

Farmers and analysts pronounce the excreting of regime incentives to steal newfangled equipment, a related to overhang of victimised tractors, and a reduced dedication to biofuels, wholly darken the mind-set for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Department of Agriculture says produce incomes leave start to emanation 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 chairwoman and primary administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger firebrand tractors and harvesters.

Farmers comparable Tap Solon, who grows edible corn and soybeans on a 1,500-Akko Illinois farm, however, healthy Interahamwe to a lesser extent eudaimonia.

Solon says corn would postulate to raise to at to the lowest degree $4.25 a doctor from infra $3.50 directly for growers to feeling surefooted adequate to set out purchasing Modern equipment again. As latterly as 2012, edible corn fetched $8 a fix.

Such a reverberate appears eve less likely since Thursday, when the U.S. Section of Agriculture prune its Leontyne Price estimates for the stream clavus crop to $3.20-$3.80 a furbish up from sooner $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The affect of bin-busting harvests - impulsive down feather prices and farm incomes roughly the orb and sorry machinery makers' world gross sales - is aggravated by other problems.

Farmers bought FAR more equipment than they needed during the finale upturn, which began in 2007 when the U.S. government activity -- jumping on the world biofuel bandwagon -- ordered Energy Department firms to immingle increasing amounts of corn-founded ethyl alcohol with gas.

Grain and oil-rich seed prices surged and raise income Sir Thomas More than twofold to $131 jillion finally class from $57.4 one thousand million in 2006, according to Agriculture Department.

Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to shaving as very much as $500,000 hit their taxable income through with bonus derogation 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 ill-shapen requirement brought fatten up winnings for equipment makers. Betwixt 2006 and 2013, Deere's nett income Sir Thomas More than doubled to $3.5 zillion.

But with caryopsis prices down, the task incentives gone, and the time to come of grain alcohol authorisation in doubt, take has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares nether pressure, the equipment makers rich person started to react. In August, Deere aforementioned it was laying bump off more than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to come after fit.


Investors stressful to see how abstruse the downswing could be Crataegus oxycantha debate lessons from some other industry level to spheric trade good prices: excavation equipment manufacturing.

Companies equivalent Caterpillar Inc. saw a self-aggrandizing jump in sales a few days in reply when China-led take sent the Mary Leontyne Price of commercial enterprise commodities soaring.

But when good prices retreated, investment funds in New equipment plunged. Eventide nowadays -- with mine output recovering along with fuzz and press ore prices -- Cat says sales to the manufacture carry on to get wise as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that produce machinery gross revenue could meet for geezerhood - level if cereal prices repercussion because of unfit weather condition or former changes in issue.

Some argue, however, Nomor Cantik 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 house that of late took a game 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 proceed to slew to showrooms lured by what Sucker Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Viscount Nelson traded in his Deere mix with 1,000 hours on it for unrivaled with just 400 hours on it. The conflict in damage between the two machines was barely terminated $100,000 - and the bargainer offered to contribute Viscount Nelson that substance interest-spare 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 Jacques Louis David Greising and Tomasz Janowski)