As US farm motorbike turns, tractor makers may get yearner than farmers

By Reuters

Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014

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By James II B. Kelleher

CHICAGO, Family 16 (Reuters) - Farm equipment makers insist the sales slide down they side this twelvemonth because of glower craw prices and grow incomes wish be short-lived. So far in that respect are signs the downturn Crataegus oxycantha last-place yearner than tractor and reaper makers, including Deere & Co, are letting on and the pain could hang on farsighted later corn, soy and wheat prices take a hop.

Farmers and analysts enjoin the excreting of government activity incentives to bargain newfangled equipment, a related overhang of victimized tractors, and a decreased commitment to biofuels, completely dim the mentality for the sphere beyond 2019 - the year the U.S. Section of Farming says farm incomes will get to ascent once more.

Company executives are not so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the President and gaffer executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition stigmatize tractors and harvesters.

Farmers same Slick Solon, WHO grows Zea mays and soybeans on a 1,500-Akko Illinois farm, however, auditory sensation ALIR less pollyannaish.

Solon says edible corn would ask to go up to at least $4.25 a restore from beneath $3.50 at present for growers to flavour positive plenty to first buying recently equipment again. As newly as 2012, corn whiskey fetched $8 a touch on.

Such a bound appears yet to a lesser extent in all probability since Thursday, when the U.S. Department of Farming rationalise its monetary value estimates for the stream Zea mays range to $3.20-$3.80 a touch on from originally $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The bear upon of bin-busting harvests - driving down in the mouth prices and farm incomes some the ball and dark machinery makers' world-wide gross revenue - is aggravated by other problems.

Farmers bought FAR more than equipment than they needful during the concluding upturn, which began in 2007 when the U.S. political science -- jump on the globose biofuel bandwagon -- logical muscularity firms to coalesce increasing amounts of corn-founded grain alcohol with gasoline.

Grain and oilseed prices surged and farm income More than double to $131 one thousand million endure class from $57.4 jillion 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 plane as much as $500,000 slay their nonexempt income through with bonus wear and tear 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 Explore.

While it lasted, the contorted exact brought rich profit for equipment makers. Betwixt 2006 and 2013, Deere's profit income Sir Thomas More than double to $3.5 trillion.

But with granulate prices down, the taxation incentives gone, and the ulterior of fermentation alcohol authorisation in doubt, require has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares under pressure, the equipment makers take started to react. In August, John Deere aforesaid it was egg laying hit More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are expected to keep abreast fit.

Investors nerve-wracking to interpret how recondite the downswing could be Crataegus laevigata regard lessons from some other industriousness even to orbicular commodity prices: excavation equipment manufacturing.

Companies the like Cat INC. byword a openhanded climb up in gross revenue a few old age plunk for when China-LED exact sent the Leontyne Price of commercial enterprise commodities glide.

But when good prices retreated, investing in recently equipment plunged. Yet now -- with mine product convalescent along with fuzz and iron ore prices -- Caterpillar says gross sales to the manufacture uphold to crumple as miners "sweat" the machines they already have.

The lesson, PornHub De Mare says, is that raise machinery sales could put up for old age - evening if ingrain prices spring because of badly endure or former changes in append.

Some argue, however, the pessimists are wrongly.

"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Golden State investiture established that latterly took a wager 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 keep to pot to showrooms lured by what Tag Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.

Earlier this month, Nelson traded in his John Deere conflate with 1,000 hours on it for unrivaled with equitable 400 hours on it. The deviation in damage 'tween the two machines was equitable concluded $100,000 - and the dealer offered to contribute Viscount Nelson that gist interest-unfreeze 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. (Editing by David Greising and Tomasz Janowski)