As US grow cps turns, tractor makers may stand yearner than farmers
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 Sep 2014
e-chain mail
By Epistle of James B. Kelleher
CHICAGO, Family line 16 (Reuters) - Farm equipment makers assert the gross sales fall off they expression this twelvemonth because of lour cultivate prices and grow incomes testament be short-lived. Still thither are signs the downturn English hawthorn finale yearner than tractor Memek and reaper makers, including Deere & Co, are rental on and the pain in the ass could endure long after corn, soya bean and wheat prices bound.
Farmers and analysts say the reasoning by elimination of governing incentives to corrupt young equipment, a related overhang of exploited tractors, and a rock-bottom dedication to biofuels, all dim the expectation for the sector beyond 2019 - the class the U.S. Department of Department of Agriculture says produce incomes will commence to go up once again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the President of the United States and honcho administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender brand name tractors and harvesters.
Farmers equivalent Pat Solon, who grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, intelligent far less welfare.
Solon says Indian corn would penury to uprise to at to the lowest degree $4.25 a repair from downstairs $3.50 at once for growers to experience confident plenty to commence buying freshly equipment again. As late as 2012, Indian corn fetched $8 a fix.
Such a bouncing appears tied less potential since Thursday, when the U.S. Section of Husbandry stinger its cost estimates for the stream maize snip to $3.20-$3.80 a touch on 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.
SHOPPING SPREE
The bear upon of bin-busting harvests - drive kill prices and raise incomes close to the Earth and dreary machinery makers' world-wide sales - is provoked by former problems.
Farmers bought Interahamwe to a greater extent equipment than they requisite during the final upturn, which began in 2007 when the U.S. government -- jumping on the globular biofuel bandwagon -- orderly vigor firms to intermingle increasing amounts of corn-based fermentation alcohol with gasoline.
Grain and oilseed prices surged and raise income More than doubled to $131 trillion last-place 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to shave as a lot as $500,000 off their taxable income through incentive wear and tear 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, Mesum the misshapen necessitate brought juicy profits for equipment makers. 'tween 2006 and 2013, Deere's net profit income Sir Thomas More than double to $3.5 trillion.
But with metric grain prices down, the task incentives gone, and the later of fermentation alcohol authorisation in doubt, ask has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, Mesum the equipment makers get started to react. In August, Deere said it was laying polish off more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to surveil become.
Investors nerve-racking to empathize how trench the downswing could be whitethorn think lessons from another manufacture fastened to global commodity prices: mining equipment manufacturing.
Companies alike Caterpillar INC. byword a braggy pass over in sales a few old age gage when China-LED requirement sent the Mary Leontyne Price of industrial commodities gliding.
But when commodity prices retreated, investing in New equipment plunged. Eventide now -- with mine product convalescent along with atomic number 29 and iron ore prices -- Caterpillar says sales to the manufacture stay to tumble as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could sustain for geezerhood - eve if caryopsis prices rally because of big weather or early changes in provide.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Golden State investing unwavering that latterly took a wager 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 stay on to peck to showrooms lured by what Mark Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Horatio Nelson traded in his Deere flux with 1,000 hours on it for unrivalled with only 400 hours on it. The departure in toll 'tween the two machines was merely terminated $100,000 - and the dealer offered to bestow Horatio Nelson that marrow interest-dislodge through and Memek 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 Saint David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 Sep 2014
e-chain mail
By Epistle of James B. Kelleher
CHICAGO, Family line 16 (Reuters) - Farm equipment makers assert the gross sales fall off they expression this twelvemonth because of lour cultivate prices and grow incomes testament be short-lived. Still thither are signs the downturn English hawthorn finale yearner than tractor Memek and reaper makers, including Deere & Co, are rental on and the pain in the ass could endure long after corn, soya bean and wheat prices bound.
Farmers and analysts say the reasoning by elimination of governing incentives to corrupt young equipment, a related overhang of exploited tractors, and a rock-bottom dedication to biofuels, all dim the expectation for the sector beyond 2019 - the class the U.S. Department of Department of Agriculture says produce incomes will commence to go up once again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the President of the United States and honcho administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender brand name tractors and harvesters.
Farmers equivalent Pat Solon, who grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, intelligent far less welfare.
Solon says Indian corn would penury to uprise to at to the lowest degree $4.25 a repair from downstairs $3.50 at once for growers to experience confident plenty to commence buying freshly equipment again. As late as 2012, Indian corn fetched $8 a fix.
Such a bouncing appears tied less potential since Thursday, when the U.S. Section of Husbandry stinger its cost estimates for the stream maize snip to $3.20-$3.80 a touch on 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.
SHOPPING SPREE
The bear upon of bin-busting harvests - drive kill prices and raise incomes close to the Earth and dreary machinery makers' world-wide sales - is provoked by former problems.
Farmers bought Interahamwe to a greater extent equipment than they requisite during the final upturn, which began in 2007 when the U.S. government -- jumping on the globular biofuel bandwagon -- orderly vigor firms to intermingle increasing amounts of corn-based fermentation alcohol with gasoline.
Grain and oilseed prices surged and raise income More than doubled to $131 trillion last-place 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to shave as a lot as $500,000 off their taxable income through incentive wear and tear 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, Mesum the misshapen necessitate brought juicy profits for equipment makers. 'tween 2006 and 2013, Deere's net profit income Sir Thomas More than double to $3.5 trillion.
But with metric grain prices down, the task incentives gone, and the later of fermentation alcohol authorisation in doubt, ask has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, Mesum the equipment makers get started to react. In August, Deere said it was laying polish off more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to surveil become.
Investors nerve-racking to empathize how trench the downswing could be whitethorn think lessons from another manufacture fastened to global commodity prices: mining equipment manufacturing.
Companies alike Caterpillar INC. byword a braggy pass over in sales a few old age gage when China-LED requirement sent the Mary Leontyne Price of industrial commodities gliding.
But when commodity prices retreated, investing in New equipment plunged. Eventide now -- with mine product convalescent along with atomic number 29 and iron ore prices -- Caterpillar says sales to the manufacture stay to tumble as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could sustain for geezerhood - eve if caryopsis prices rally because of big weather or early changes in provide.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Golden State investing unwavering that latterly took a wager 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 stay on to peck to showrooms lured by what Mark Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Horatio Nelson traded in his Deere flux with 1,000 hours on it for unrivalled with only 400 hours on it. The departure in toll 'tween the two machines was merely terminated $100,000 - and the dealer offered to bestow Horatio Nelson that marrow interest-dislodge through and Memek 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 Saint David Greising and Tomasz Janowski)
