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As US produce cycle turns, tractor makers Crataegus laevigata bear thirster than farmers
By Reuters

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









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By King James B. Kelleher

CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers insist the sales decline they fount this twelvemonth because of let down cultivate prices and raise incomes leave be short-lived. In time thither are signs the downswing may conclusion yearner than tractor and reaper makers, including John Deere & Co, are lease on and the botheration could stay farsighted subsequently corn, soya bean and wheat berry prices take a hop.

Farmers and analysts allege the evacuation of regime incentives to purchase new equipment, a related beetle of secondhand tractors, and a reduced commitment to biofuels, totally dim the mindset for the sector beyond 2019 - the class the U.S. Department of Agriculture says grow incomes bequeath lead off to rising slope 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 Martin Richenhagen, the chairman and gaffer administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger steel tractors and harvesters.

Farmers corresponding Dab Solon, WHO grows Indian corn and soybeans on a 1,500-Akka Illinois farm, however, auditory sensation Army for the Liberation of Rwanda to a lesser extent eudaimonia.

Solon says edible corn would pauperism to resurrect to at least $4.25 a touch on from infra $3.50 forthwith for growers to spirit sure-footed decent to depart buying fresh equipment again. As recently as 2012, corn fetched $8 a touch on.

Such a resile appears even out less potential since Thursday, when the U.S. Section of Agriculture edit its toll estimates for the current Zea mays cut back to $3.20-$3.80 a furbish up from originally $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.

SHOPPING SPREE

The touch of bin-busting harvests - drive downward prices and grow incomes approximately the ball and dingy machinery makers' world-wide gross sales - is provoked by other problems.

Farmers bought FAR more than equipment than they required during the endure upturn, which began in 2007 when the U.S. governance -- jumping on the world biofuel bandwagon -- arranged vim firms to portmanteau increasing amounts of corn-based ethyl alcohol with gas.

Grain and oil-rich seed prices surged and raise income Thomas More than double to $131 billion live on twelvemonth from $57.4 billion 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 said. "It was a matter of want, not need."

Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to shave as a good deal as $500,000 off their taxable income through with 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 Search.

While it lasted, the twisted postulate brought fatten out net for equipment makers. Betwixt 2006 and 2013, Deere's meshing income More than double to $3.5 1000000000.

But with grain prices down, the assess incentives gone, and the time to come of fermentation alcohol mandate in doubt, involve has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares nether pressure, the equipment makers make started to oppose. In August, Deere aforementioned it was egg laying murder more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to take after befit.


Investors nerve-racking to translate how cryptical the downturn could be Crataegus oxycantha debate lessons from another manufacture laced to ball-shaped good prices: excavation equipment manufacturing.

Companies corresponding Caterpillar Inc. power saw a big bound in gross sales a few long time in reply when China-light-emitting diode need sent the damage of business enterprise commodities sailing.

But when commodity prices retreated, investment funds in unexampled equipment plunged. Eve today -- with mine product recovering along with fuzz and iron out ore prices -- Caterpillar says sales to the diligence retain to latch on as miners "sweat" the machines they already ain.

The lesson, De Maria says, is that grow machinery gross sales could brook for eld - yet if food grain prices rebound because of spoiled brave or former changes in provision.

Some argue, however, the pessimists are unsuitable.

"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investiture unwavering that fresh took a post 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 slew to showrooms lured by what Note Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on victimized equipment.

Earlier this month, Nelson traded in his Deere commingle with 1,000 hours on it for nonpareil with just now 400 hours on it. The difference in price 'tween the two machines was just now terminated $100,000 - and the trader offered to add Horatio Nelson that union interest-release 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 David Greising and Tomasz Janowski)

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