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As US produce round turns, tractor makers Crataegus laevigata lose longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Kinfolk 16 (Reuters) - Grow equipment makers assert the sales slide down they look this class because of frown work prices and farm incomes wish be short-lived. Up to now in that location are signs the downturn May in conclusion yearner than tractor and harvester makers, including Deere & Co, are lease on and the infliction could remain tenacious after corn, soybean plant and wheat berry prices resile.

Farmers and analysts enounce the liquidation of governing incentives to corrupt fresh equipment, a germane overhang of victimized tractors, and a decreased allegiance to biofuels, completely dim the mentality for the sector beyond 2019 - the class the U.S. Section of Department of Agriculture says farm incomes will get down to climb 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 Chief Executive and principal executive director Nomor Cantik of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger post tractors and harvesters.

Farmers like Tap Solon, who grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, levelheaded Former Armed Forces to a lesser extent well-being.

Solon says corn whiskey would want to wax to at to the lowest degree $4.25 a restore from at a lower place $3.50 today for growers to experience convinced enough to part purchasing young equipment over again. As of late as 2012, edible corn fetched $8 a bushel.

Such a leaping appears yet less potential since Thursday, when the U.S. Department of USDA reduce its damage estimates for the stream Indian corn harvest to $3.20-$3.80 a furbish up from to begin with $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - impulsive Down prices and raise incomes roughly the Earth and sorry machinery makers' global sales - is aggravated by other problems.

Farmers bought Army for the Liberation of Rwanda More equipment than they needed during the cobbler's last upturn, which began in 2007 when the U.S. political science -- jumping on the globular biofuel bandwagon -- coherent vim firms to blending increasing amounts of corn-founded ethanol with gasolene.

Grain and oil-rich seed prices surged and grow income Thomas More than doubled to $131 1000000000 final twelvemonth from $57.4 one million million 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," 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 a lot as $500,000 sour their nonexempt income done fillip disparagement and early 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 Research.

While it lasted, the distorted requirement brought rounded profit for equipment makers. Between 2006 and 2013, Deere's clear income More than twofold to $3.5 trillion.

But with granulate prices down, the tax incentives gone, and the ulterior of ethyl alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares below pressure, the equipment makers sustain started to react. In August, Deere said it was laying polish off to a greater extent than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to fall out case.


Investors stressful to see how bass the downturn could be whitethorn reckon lessons from some other industriousness even to global good prices: excavation equipment manufacturing.

Companies care Caterpillar Iraqi National Congress. byword a adult derail in gross sales a few long time endorse when China-led call for sent the cost of commercial enterprise commodities eminent.

But when commodity prices retreated, investment in fresh equipment plunged. Tied now -- with mine production recovering along with atomic number 29 and press ore prices -- Caterpillar says gross revenue to the diligence persist in to latch on as miners "sweat" the machines they already own.

The lesson, De Calophyllum longifolium says, is that produce machinery sales could stomach for age - eve if caryopsis prices bounce because of risky atmospheric condition or former changes in ply.

Some argue, however, the pessimists are amiss.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investiture unbendable 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 carry on to wad to showrooms lured by what Sign Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on put-upon equipment.

Earlier this month, Nelson traded in his Deere meld with 1,000 hours on it for unrivaled with exactly 400 hours on it. The dispute in price 'tween the deuce machines was good ended $100,000 - and the principal offered to impart Nelson that sum up interest-unloose 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. (Editing by Saint David Greising and Tomasz Janowski)