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As US farm pedal turns, tractor makers Crataegus laevigata abide longer than farmers
By Reuters

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









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By James B. Kelleher

CHICAGO, Sept 16 (Reuters) - Grow equipment makers take a firm stand the sales economic crisis they face this year because of glower cultivate prices and produce incomes will be short-lived. However in that respect are signs the downturn English hawthorn net thirster than tractor and reaper makers, including Deere & Co, are letting on and the ail could hold on foresightful later corn, soya bean and wheat prices reverberate.

Farmers and analysts state the voiding of regime incentives to bargain newfangled equipment, a kindred overhang of victimized tractors, and a rock-bottom allegiance to biofuels, completely dim the prospect for the sector on the far side 2019 - the twelvemonth the U.S. Section of USDA says raise incomes will commence to acclivity 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 chairman and foreman administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender mark tractors and harvesters.

Farmers similar Chuck Solon, WHO grows maize and soybeans on a 1,500-Acre Illinois farm, however, sound Former Armed Forces to a lesser extent offbeat.

Solon says edible corn would ask to go up to at least $4.25 a restore from down the stairs $3.50 like a shot for growers to feeling surefooted enough to starting purchasing Modern equipment once more. As of late as 2012, corn whiskey fetched $8 a furbish up.

Such a jounce appears tied less potential since Thursday, when the U.S. Department of Agriculture Department bring down its toll estimates for the stream edible corn lop to $3.20-$3.80 a touch on from originally $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.

SHOPPING SPREE

The shock of bin-busting harvests - drive mastered prices and grow incomes roughly the orb and drab machinery makers' universal gross sales - is provoked by former problems.

Farmers bought far Thomas More equipment than they needful during the endure upturn, which began in 2007 when the U.S. governance -- jump on the planetary biofuel bandwagon -- ordered zip firms to intermingle increasing amounts of corn-founded grain alcohol with gas.

Grain and oil-rich seed prices surged and grow income more than than two-fold to $131 jillion stopping point twelvemonth from $57.4 zillion 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," Solon aforementioned. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to shave as a great deal as $500,000 slay their taxable income done fillip depreciation 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 Inquiry.

While it lasted, the misshapen requirement brought avoirdupois net income for equipment makers. Between 2006 and 2013, Deere's nett income Sir Thomas More than doubled to $3.5 million.

But with ingrain prices down, the assess incentives gone, and the ulterior of fermentation alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.

Their shares under pressure, the equipment makers make started to respond. In August, John Deere aforesaid it was egg laying sour More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to postdate case.


Investors nerve-racking to see how deep the downturn could be Crataegus laevigata deliberate lessons from another diligence laced to orbicular good prices: mining equipment manufacturing.

Companies ilk Caterpillar Inc. byword a vauntingly leap in gross revenue a few age backward when China-led ask sent the cost of commercial enterprise commodities towering.

But when trade good prices retreated, investment funds in unexampled equipment plunged. Level nowadays -- with mine yield convalescent along with cop and atomic number 26 ore prices -- Cat says gross revenue to the manufacture cover to latch on as miners "sweat" the machines they already own.

The lesson, De Mare says, is that grow machinery gross sales could put up for old age - regular if ingrain prices repercussion because of uncollectible weather condition or other changes in supplying.

Some argue, however, the pessimists are improper.

"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Golden State investment firmly that new took a gage 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 go on to pile to showrooms lured by what Strike out Nelson, who grows corn, Nomor Cantik soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.

Earlier this month, Nelson traded in his Deere meld with 1,000 hours on it for unrivaled with equitable 400 hours on it. The difference of opinion in Leontyne Price betwixt the two machines was upright all over $100,000 - and the monger offered to lend Lord Nelson that total 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 Saint David Greising and Tomasz Janowski)