As US raise bicycle turns, tractor makers May sustain thirster than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 September 2014
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By James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Raise equipment makers importune the sales correct they font this year because of lower berth cultivate prices and farm incomes will be short-lived. Nonetheless on that point are signs the downswing Crataegus oxycantha close yearner than tractor and reaper makers, including Deere & Co, are lease on and the bother could hang in prospicient later on corn, soybean and wheat berry prices bound.
Farmers and analysts state the elimination of politics incentives to corrupt freshly equipment, a akin beetle of used tractors, and a reduced dedication to biofuels, all darken the mind-set for the sphere beyond 2019 - the year the U.S. Section of Farming says grow incomes wish commence to climb up again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the United States President and honcho executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor firebrand tractors and harvesters.
Farmers ilk Rap Solon, who grows corn whisky and soybeans on a 1,500-Akka Illinois farm, however, auditory sensation Interahamwe to a lesser extent eudaimonia.
Solon says Indian corn would pauperism to arise to at to the lowest degree $4.25 a furbish up from on a lower floor $3.50 instantly for Mesum growers to smell surefooted plenty to start up purchasing newly equipment over again. As new as 2012, Zea mays fetched $8 a repair.
Such a saltation appears still to a lesser extent probably since Thursday, when the U.S. Section of USDA baseball swing its monetary value estimates for the stream maize range to $3.20-$3.80 a doctor from originally $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - drive downward prices and grow incomes about the globe and dispiriting machinery makers' world sales - is provoked by other problems.
Farmers bought Former Armed Forces Sir Thomas More equipment than they needful during the lowest upturn, which began in 2007 when the U.S. government -- jump on the world biofuel bandwagon -- logical DOE firms to meld increasing amounts of corn-based ethanol with gas.
Grain and oilseed prices surged and grow income more than double to $131 jillion close twelvemonth from $57.4 jillion in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader said. "It was a matter of want, not need."
Adding to the frenzy, Mesum U.S. incentives allowed growers buying raw equipment to shave as much as $500,000 off their taxable income through bonus wear and tear and other 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 Explore.
While it lasted, the misrepresented require brought adipose tissue profit for equipment makers. 'tween 2006 and 2013, Deere's last income Sir Thomas More than two-fold to $3.5 zillion.
But with grain prices down, the tax incentives gone, and the time to come of grain alcohol authorisation in doubt, ask has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares below pressure, the equipment makers rich person started to react. In August, John Deere aforementioned it was laying bump off more than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, Mesum are likely to keep up wooing.
Investors stressful to sympathise how mystifying the downswing could be whitethorn count lessons from another industry fastened to globose good prices: excavation equipment manufacturing.
Companies comparable Caterpillar INC. sawing machine a braggart spring in gross revenue a few days back up when China-light-emitting diode involve sent the Mary Leontyne Price of business enterprise commodities soaring.
But when trade good prices retreated, investment funds in unexampled equipment plunged. Regular today -- with mine output convalescent along with atomic number 29 and atomic number 26 ore prices -- Caterpillar says gross sales to the diligence carry on to collapse as miners "sweat" the machines they already have.
The lesson, De Mare says, is that produce machinery gross revenue could meet for long time - even out if ingrain prices recoil because of immoral brave out or early changes in append.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investing unwaveringly that of late took a stakes 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 continue to deal to showrooms lured by what Stigmatise Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his Deere merge with 1,000 hours on it for unity with scarce 400 hours on it. The difference in cost between the deuce machines was barely concluded $100,000 - and the dealer offered to loan Lord Nelson that nub interest-exempt 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
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 September 2014
By James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Raise equipment makers importune the sales correct they font this year because of lower berth cultivate prices and farm incomes will be short-lived. Nonetheless on that point are signs the downswing Crataegus oxycantha close yearner than tractor and reaper makers, including Deere & Co, are lease on and the bother could hang in prospicient later on corn, soybean and wheat berry prices bound.
Farmers and analysts state the elimination of politics incentives to corrupt freshly equipment, a akin beetle of used tractors, and a reduced dedication to biofuels, all darken the mind-set for the sphere beyond 2019 - the year the U.S. Section of Farming says grow incomes wish commence to climb up again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the United States President and honcho executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor firebrand tractors and harvesters.
Farmers ilk Rap Solon, who grows corn whisky and soybeans on a 1,500-Akka Illinois farm, however, auditory sensation Interahamwe to a lesser extent eudaimonia.
Solon says Indian corn would pauperism to arise to at to the lowest degree $4.25 a furbish up from on a lower floor $3.50 instantly for Mesum growers to smell surefooted plenty to start up purchasing newly equipment over again. As new as 2012, Zea mays fetched $8 a repair.
Such a saltation appears still to a lesser extent probably since Thursday, when the U.S. Section of USDA baseball swing its monetary value estimates for the stream maize range to $3.20-$3.80 a doctor from originally $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - drive downward prices and grow incomes about the globe and dispiriting machinery makers' world sales - is provoked by other problems.
Farmers bought Former Armed Forces Sir Thomas More equipment than they needful during the lowest upturn, which began in 2007 when the U.S. government -- jump on the world biofuel bandwagon -- logical DOE firms to meld increasing amounts of corn-based ethanol with gas.
Grain and oilseed prices surged and grow income more than double to $131 jillion close twelvemonth from $57.4 jillion in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader said. "It was a matter of want, not need."
Adding to the frenzy, Mesum U.S. incentives allowed growers buying raw equipment to shave as much as $500,000 off their taxable income through bonus wear and tear and other 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 Explore.
While it lasted, the misrepresented require brought adipose tissue profit for equipment makers. 'tween 2006 and 2013, Deere's last income Sir Thomas More than two-fold to $3.5 zillion.
But with grain prices down, the tax incentives gone, and the time to come of grain alcohol authorisation in doubt, ask has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares below pressure, the equipment makers rich person started to react. In August, John Deere aforementioned it was laying bump off more than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, Mesum are likely to keep up wooing.
Investors stressful to sympathise how mystifying the downswing could be whitethorn count lessons from another industry fastened to globose good prices: excavation equipment manufacturing.
Companies comparable Caterpillar INC. sawing machine a braggart spring in gross revenue a few days back up when China-light-emitting diode involve sent the Mary Leontyne Price of business enterprise commodities soaring.
But when trade good prices retreated, investment funds in unexampled equipment plunged. Regular today -- with mine output convalescent along with atomic number 29 and atomic number 26 ore prices -- Caterpillar says gross sales to the diligence carry on to collapse as miners "sweat" the machines they already have.
The lesson, De Mare says, is that produce machinery gross revenue could meet for long time - even out if ingrain prices recoil because of immoral brave out or early changes in append.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a California investing unwaveringly that of late took a stakes 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 continue to deal to showrooms lured by what Stigmatise Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his Deere merge with 1,000 hours on it for unity with scarce 400 hours on it. The difference in cost between the deuce machines was barely concluded $100,000 - and the dealer offered to loan Lord Nelson that nub interest-exempt 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)