As U.S. farm cycle turns, tractor makers may suffer longer than farmers

Tue Sep 16, 2014 2:48am EDT
 
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By James B. Kelleher

CHICAGO (Reuters) - Farm equipment makers insist the sales slump they face this year because of lower crop prices and farm incomes will be short-lived. Yet there are signs the downturn may last longer than tractor and harvester makers, including Deere & Co (DE.N: Quote), are letting on and the pain could persist long after corn, soybean and wheat prices rebound.

Farmers and analysts say the elimination of government incentives to buy new equipment, a related overhang of used tractors, and a reduced commitment to biofuels, all darken the outlook for the sector beyond 2019 - the year the U.S. Department of Agriculture says farm incomes will begin to rise 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 president and chief executive of Duluth, Georgia-based Agco Corp (AGCO.N: Quote), which makes Massey Ferguson and Challenger brand tractors and harvesters.

Farmers like Pat Solon, who grows corn and soybeans on a 1,500-acre Illinois farm, however, sound far less upbeat.

Solon says corn would need to rise to at least $4.25 a bushel from below $3.50 now for growers to feel confident enough to start buying new equipment again. As recently as 2012, corn fetched $8 a bushel.

Such a bounce appears even less likely since Thursday, when the U.S. Department of Agriculture cut its price estimates for the current corn crop to $3.20-$3.80 a bushel from earlier $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.

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People look at OXBO harvesters at the 47th Annual World Ag Expo in Tulare, California in this February 12, 2014 file photo.    REUTERS/David Mcnew/Files