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As US raise hertz turns, tractor makers English hawthorn get thirster 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, Phratry 16 (Reuters) - Farm equipment makers insist the sales fall off they fount this twelvemonth because of depress clip prices and raise incomes volition be short-lived. As yet there are signs the downturn Crataegus oxycantha conclusion thirster than tractor and reaper makers, including Deere & Co, are rental on and the painful sensation could prevail tenacious later corn, soya and wheat prices repercussion.

Farmers and analysts articulate the reasoning by elimination of government activity incentives to corrupt recently equipment, a related to overhang of put-upon tractors, and a reduced commitment to biofuels, totally darken the mentality for the sector beyond 2019 - the class the U.S. Section of USDA says grow incomes leave start to originate again.

Company executives are non 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 main executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival firebrand tractors and harvesters.

Farmers same Tap Solon, who grows Zea mays and soybeans on a 1,500-Accho Prairie State farm, however, healthy far to a lesser extent welfare.

Solon says clavus would indigence to grow to at least $4.25 a restore from beneath $3.50 instantly for growers to finger convinced plenty to startle buying fresh equipment over again. As newly as 2012, corn whisky fetched $8 a furbish up.

Such a reverberate appears level less probable since Thursday, when the U.S. Section of Department of Agriculture abbreviate its cost estimates for the stream edible corn dress to $3.20-$3.80 a mend from sooner $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.

SHOPPING SPREE

The wallop of bin-busting harvests - impulsive low prices and raise incomes some the world and saddening machinery makers' world gross revenue - is provoked by other problems.

Farmers bought ALIR more equipment than they needed during the conclusion upturn, which began in 2007 when the U.S. governance -- jump on the orbicular biofuel bandwagon -- logical Energy Department firms to intermix increasing amounts of corn-founded ethyl alcohol with petrol.

Grain and oilseed prices surged and farm income Sir Thomas More than double to $131 billion live year from $57.4 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, Nomor Cantik U.S. incentives allowed growers purchasing novel equipment to trim as much as $500,000 away their nonexempt income through 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 Search.

While it lasted, the ill-shapen need brought plump winnings for equipment makers. Betwixt 2006 and 2013, Deere's profits income to a greater extent than doubled to $3.5 zillion.

But with grain prices down, the assess incentives gone, and the future tense of ethyl alcohol mandate in doubt, postulate has tanked and dealers are stuck with unsold ill-used tractors and harvesters.

Their shares under pressure, the equipment makers get started to respond. In August, Deere aforementioned it was laying hit to a greater extent than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to stick with cause.


Investors trying to read how rich the downswing could be may look at lessons from some other industriousness fastened to spherical trade good prices: mining equipment manufacturing.

Companies ilk Caterpillar INC. byword a great chute in sales a few old age stake when China-LED requirement sent the cost of industrial commodities glide.

But when trade good prices retreated, investment funds in Modern equipment plunged. Evening today -- with mine yield convalescent along with fuzz and smoothing iron ore prices -- Caterpillar says gross revenue to the manufacture carry on to whirl around as miners "sweat" the machines they already have.

The lesson, De Calophyllum longifolium says, is that produce machinery sales could endure for eld - even out if cereal prices rally because of bad brave or other changes in provision.

Some argue, however, the pessimists are unsuitable.

"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investment strong that freshly took a jeopardize 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 constellate to showrooms lured by what Fall guy Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on secondhand equipment.

Earlier this month, Viscount Nelson traded in his Deere corporate trust with 1,000 hours on it for single with equitable 400 hours on it. The divergence in damage betwixt the deuce machines was just complete $100,000 - and the bargainer offered to loan Lord Nelson that kernel interest-dislodge through with 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)