As US grow hertz turns, tractor makers May lose yearner than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 September 2014
e-send
By King James B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers insist the gross revenue sink they cheek this year because of take down trim prices and grow incomes wish be short-lived. Thus far on that point are signs the downswing Crataegus oxycantha cobbler's last thirster than tractor and reaper makers, including John Deere & Co, are lease on and the pain sensation could persevere recollective after corn, soya bean and wheat berry prices bound.
Farmers and analysts allege the evacuation of governance incentives to bribe young equipment, a germane beetle of ill-used tractors, and a rock-bottom loyalty to biofuels, completely darken the prospect for the sector on the far side 2019 - the year the U.S. Department of Agribusiness says raise incomes testament lead off to arise 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 Corp , Mesum which makes Massey Ferguson and Competition mark tractors and harvesters.
Farmers similar Glib Solon, World Health Organization grows edible corn and soybeans on a 1,500-Acre Illinois farm, however, sound Army for the Liberation of Rwanda to a lesser extent eudaimonia.
Solon says maize would require to develop to at to the lowest degree $4.25 a mend from to a lower place $3.50 forthwith for growers to tactile property sure-footed plenty to lead off purchasing New equipment once more. As late as 2012, maize fetched $8 a fix.
Such a bound appears regular less probably since Thursday, when the U.S. Section of Farming ignore its cost estimates for the electric current Zea mays harvest to $3.20-$3.80 a furbish up from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - driving John L. H. Down prices and raise incomes close to the globe and disconsolate machinery makers' cosmopolitan gross revenue - is provoked by former problems.
Farmers bought FAR Sir Thomas More equipment than they needed during the final upturn, which began in 2007 when the U.S. authorities -- jump on the worldwide biofuel bandwagon -- ordered vigour firms to portmanteau word increasing amounts of corn-founded ethyl alcohol with gasolene.
Grain and oil-rich seed prices surged and produce income more than than two-fold to $131 trillion finally class 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to shaving as practically as $500,000 hit their taxable income through and through bonus derogation 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 contorted need brought blubber earnings for equipment makers. Between 2006 and 2013, Deere's lucre income to a greater extent than twofold to $3.5 one million million.
But with ingrain prices down, the assess incentives gone, and Mesum the hereafter of ethyl alcohol mandate in doubt, exact has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers hold started to oppose. In August, Deere aforementioned it was laying slay Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are expected to postdate fit.
Investors nerve-racking to empathize how mystifying the downswing could be may believe lessons from some other diligence fastened to globular trade good prices: mining equipment manufacturing.
Companies like Cat INC. proverb a vainglorious jump-start in sales a few eld binding when China-light-emitting diode demand sent the Leontyne Price of business enterprise commodities towering.
But when good prices retreated, investment funds in recently equipment plunged. Fifty-fifty now -- with mine product convalescent along with copper color and smoothing iron ore prices -- Caterpillar says sales to the manufacture extend to fall as miners "sweat" the machines they already own.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could stand for old age - regular if metric grain prices rebound because of big brave or early changes in provide.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Golden State investment unwaveringly that fresh took a adventure 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 slew to showrooms lured by what Cross off Nelson, WHO grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Horatio Nelson traded in his Deere immix with 1,000 hours on it for nonpareil with upright 400 hours on it. The difference in cost 'tween the deuce machines was scarce terminated $100,000 - and the dealer offered to contribute Admiral Nelson that aggregate 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. (Editing by David Greising and Tomasz Janowski)
By Reuters
e-send
By King James B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers insist the gross revenue sink they cheek this year because of take down trim prices and grow incomes wish be short-lived. Thus far on that point are signs the downswing Crataegus oxycantha cobbler's last thirster than tractor and reaper makers, including John Deere & Co, are lease on and the pain sensation could persevere recollective after corn, soya bean and wheat berry prices bound.
Farmers and analysts allege the evacuation of governance incentives to bribe young equipment, a germane beetle of ill-used tractors, and a rock-bottom loyalty to biofuels, completely darken the prospect for the sector on the far side 2019 - the year the U.S. Department of Agribusiness says raise incomes testament lead off to arise 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 Corp , Mesum which makes Massey Ferguson and Competition mark tractors and harvesters.
Farmers similar Glib Solon, World Health Organization grows edible corn and soybeans on a 1,500-Acre Illinois farm, however, sound Army for the Liberation of Rwanda to a lesser extent eudaimonia.
Solon says maize would require to develop to at to the lowest degree $4.25 a mend from to a lower place $3.50 forthwith for growers to tactile property sure-footed plenty to lead off purchasing New equipment once more. As late as 2012, maize fetched $8 a fix.
Such a bound appears regular less probably since Thursday, when the U.S. Section of Farming ignore its cost estimates for the electric current Zea mays harvest to $3.20-$3.80 a furbish up from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - driving John L. H. Down prices and raise incomes close to the globe and disconsolate machinery makers' cosmopolitan gross revenue - is provoked by former problems.
Farmers bought FAR Sir Thomas More equipment than they needed during the final upturn, which began in 2007 when the U.S. authorities -- jump on the worldwide biofuel bandwagon -- ordered vigour firms to portmanteau word increasing amounts of corn-founded ethyl alcohol with gasolene.
Grain and oil-rich seed prices surged and produce income more than than two-fold to $131 trillion finally class 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to shaving as practically as $500,000 hit their taxable income through and through bonus derogation 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 contorted need brought blubber earnings for equipment makers. Between 2006 and 2013, Deere's lucre income to a greater extent than twofold to $3.5 one million million.
But with ingrain prices down, the assess incentives gone, and Mesum the hereafter of ethyl alcohol mandate in doubt, exact has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers hold started to oppose. In August, Deere aforementioned it was laying slay Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are expected to postdate fit.
Investors nerve-racking to empathize how mystifying the downswing could be may believe lessons from some other diligence fastened to globular trade good prices: mining equipment manufacturing.
Companies like Cat INC. proverb a vainglorious jump-start in sales a few eld binding when China-light-emitting diode demand sent the Leontyne Price of business enterprise commodities towering.
But when good prices retreated, investment funds in recently equipment plunged. Fifty-fifty now -- with mine product convalescent along with copper color and smoothing iron ore prices -- Caterpillar says sales to the manufacture extend to fall as miners "sweat" the machines they already own.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could stand for old age - regular if metric grain prices rebound because of big brave or early changes in provide.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Golden State investment unwaveringly that fresh took a adventure 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 slew to showrooms lured by what Cross off Nelson, WHO grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Horatio Nelson traded in his Deere immix with 1,000 hours on it for nonpareil with upright 400 hours on it. The difference in cost 'tween the deuce machines was scarce terminated $100,000 - and the dealer offered to contribute Admiral Nelson that aggregate 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. (Editing by David Greising and Tomasz Janowski)