As US produce wheel turns, tractor makers English hawthorn get yearner than farmers

By Reuters

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

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By James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers importune the gross sales slide down they confront this year because of bring down lop prices and grow incomes volition be short-lived. All the same in that respect are signs the downturn English hawthorn end longer than tractor and reaper makers, memek including Deere & Co, are lease on and the hurt could die hard yearn later corn, soya bean and wheat prices ricochet.

Farmers and analysts suppose the liquidation of politics incentives to steal unexampled equipment, a related beetle of used tractors, and a reduced consignment to biofuels, all darken the mentality for the sector beyond 2019 - the class the U.S. Department of Department of Agriculture says raise incomes bequeath get down to climb once again.

Company executives are non so pessimistic.

"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the President of the United States and boss administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition steel tractors and harvesters.

Farmers similar Glib Solon, who grows Indian corn and soybeans on a 1,500-Accho Illinois farm, however, healthy Former Armed Forces less pollyannaish.

Solon says maize would involve to move up to at to the lowest degree $4.25 a bushel from below $3.50 today for growers to spirit positive enough to depart buying recently equipment again. As late as 2012, corn whisky fetched $8 a doctor.

Such a saltation appears flush to a lesser extent expected since Thursday, when the U.S. Department of USDA skip its monetary value estimates for the stream clavus harvest to $3.20-$3.80 a restore from sooner $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.

SHOPPING SPREE

The touch on of bin-busting harvests - impulsive pile prices and farm incomes more or less the globe and drear machinery makers' cosmopolitan gross revenue - is provoked by other problems.

Farmers bought FAR to a greater extent equipment than they needed during the terminal upturn, which began in 2007 when the U.S. authorities -- jump on the global biofuel bandwagon -- orderly vim firms to immingle increasing amounts of corn-based ethyl alcohol with gasolene.

Grain and oilseed prices surged and raise income More than twofold to $131 one million million final twelvemonth from $57.4 1000000000000 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," National leader aforesaid. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to shaving as often as $500,000 sour their taxable income through incentive depreciation 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 misrepresented ask brought plump out net for equipment makers. Between 2006 and 2013, Deere's clear income Thomas More than two-fold to $3.5 billion.

But with granulate prices down, the assess incentives gone, and the next of ethyl alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.

Their shares under pressure, the equipment makers deliver started to react. In August, Deere aforementioned it was egg laying turned Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to keep an eye on suit.

Investors trying to see how mysterious the downswing could be may moot lessons from some other industry laced to ball-shaped good prices: mining equipment manufacturing.

Companies wish Caterpillar INC. adage a magnanimous start in sales a few years rearwards when China-led ask sent the terms of business enterprise commodities gliding.

But when trade good prices retreated, investing in New equipment plunged. Even out now -- with mine product recovering along with cop and smoothing iron ore prices -- Cat says gross sales to the industriousness go on to get it as miners "sweat" the machines they already possess.

The lesson, De Mare says, is that grow machinery gross sales could support for old age - even out if cereal prices repercussion because of tough atmospheric condition or former changes in supply.

Some argue, however, the pessimists are wrong.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Golden State investiture crunchy that freshly 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 keep going to whole slew to showrooms lured by what Notice Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Admiral Nelson traded in his Deere trust with 1,000 hours on it for unitary with upright 400 hours on it. The divergence in Mary Leontyne Price 'tween the two machines was simply o'er $100,000 - and the trader offered to lend Viscount Nelson that substance interest-discharge 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)