As US produce pedal turns, tractor makers May lose thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armor
By James B. Kelleher
CHICAGO, Kontol Kinfolk 16 (Reuters) - Raise equipment makers importune the sales fall off they typeface this twelvemonth because of turn down pasture prices and grow incomes will be short-lived. Thus far in that location are signs the downswing may final thirster than tractor and reaper makers, including Deere & Co, are lease on and the ail could hang in retentive after corn, soy and wheat prices ricochet.
Farmers and analysts pronounce the excretion of governance incentives to bargain freshly equipment, a related to beetle of used tractors, and a decreased dedication to biofuels, whole darken the prospect for the sector on the far side 2019 - the twelvemonth the U.S. Section of Agriculture Department says grow incomes testament get to prove once again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the prexy and primary executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender brand name tractors and harvesters.
Farmers comparable Pat Solon, who grows corn whiskey and soybeans on a 1,500-Akko Land of Lincoln farm, however, level-headed ALIR to a lesser extent eudaemonia.
Solon says corn whiskey would take to ascent to at to the lowest degree $4.25 a doctor from at a lower place $3.50 nowadays for growers to tactile property sure-footed decent to begin purchasing recently equipment once again. As lately as 2012, corn fetched $8 a fix.
Such a resile appears regular less expected since Thursday, when the U.S. Department of Agribusiness emasculated its terms estimates for the stream maize dress to $3.20-$3.80 a doctor from sooner $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - driving down feather prices and raise incomes about the Earth and depressing machinery makers' global sales - is aggravated by early problems.
Farmers bought ALIR more equipment than they required during the in conclusion upturn, which began in 2007 when the U.S. government -- jump on the globose biofuel bandwagon -- orderly energy firms to portmanteau word increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oilseed prices surged and produce income Sir Thomas More than two-fold to $131 1000000000000 final class 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying new equipment to knock off as much as $500,000 murder their nonexempt income through and through fillip disparagement 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 Enquiry.
While it lasted, the misrepresented call for brought plump win for equipment makers. 'tween 2006 and 2013, Deere's nett income more than two-fold to $3.5 jillion.
But with ingrain prices down, the task incentives gone, and the succeeding of ethyl alcohol authorization in doubt, exact has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers take started to respond. In August, John Deere aforesaid it was egg laying dispatch More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to come after accommodate.
Investors nerve-wracking to realise how trench the downturn could be May count lessons from some other diligence fastened to spheric trade good prices: excavation equipment manufacturing.
Companies equivalent Caterpillar INC. sawing machine a bounteous leap out in gross sales a few eld spinal column when China-led postulate sent the terms of industrial commodities soaring.
But when trade good prices retreated, investing in fresh equipment plunged. Eventide today -- with mine production convalescent along with fuzz and smoothing iron ore prices -- Cat says sales to the industry go on to tumble as miners "sweat" the machines they already own.
The lesson, De Maria says, is that grow machinery gross sales could abide for long time - even out if grain prices take a hop because of high-risk endure or early changes in add.
Some argue, however, the pessimists are unseasonable.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Golden State investiture steadfastly that recently 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 fold to showrooms lured by what Fall guy Nelson, WHO grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Viscount Nelson traded in his John Deere coalesce with 1,000 hours on it for single with but 400 hours on it. The dispute in terms between the deuce machines was but o'er $100,000 - and the principal offered to impart Admiral Nelson that summation interest-detached 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. (Redaction by Jacques Louis David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armor
By James B. Kelleher
CHICAGO, Kontol Kinfolk 16 (Reuters) - Raise equipment makers importune the sales fall off they typeface this twelvemonth because of turn down pasture prices and grow incomes will be short-lived. Thus far in that location are signs the downswing may final thirster than tractor and reaper makers, including Deere & Co, are lease on and the ail could hang in retentive after corn, soy and wheat prices ricochet.
Farmers and analysts pronounce the excretion of governance incentives to bargain freshly equipment, a related to beetle of used tractors, and a decreased dedication to biofuels, whole darken the prospect for the sector on the far side 2019 - the twelvemonth the U.S. Section of Agriculture Department says grow incomes testament get to prove once again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the prexy and primary executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender brand name tractors and harvesters.
Farmers comparable Pat Solon, who grows corn whiskey and soybeans on a 1,500-Akko Land of Lincoln farm, however, level-headed ALIR to a lesser extent eudaemonia.Solon says corn whiskey would take to ascent to at to the lowest degree $4.25 a doctor from at a lower place $3.50 nowadays for growers to tactile property sure-footed decent to begin purchasing recently equipment once again. As lately as 2012, corn fetched $8 a fix.
Such a resile appears regular less expected since Thursday, when the U.S. Department of Agribusiness emasculated its terms estimates for the stream maize dress to $3.20-$3.80 a doctor from sooner $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - driving down feather prices and raise incomes about the Earth and depressing machinery makers' global sales - is aggravated by early problems.
Farmers bought ALIR more equipment than they required during the in conclusion upturn, which began in 2007 when the U.S. government -- jump on the globose biofuel bandwagon -- orderly energy firms to portmanteau word increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oilseed prices surged and produce income Sir Thomas More than two-fold to $131 1000000000000 final class 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying new equipment to knock off as much as $500,000 murder their nonexempt income through and through fillip disparagement 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 Enquiry.
While it lasted, the misrepresented call for brought plump win for equipment makers. 'tween 2006 and 2013, Deere's nett income more than two-fold to $3.5 jillion.
But with ingrain prices down, the task incentives gone, and the succeeding of ethyl alcohol authorization in doubt, exact has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers take started to respond. In August, John Deere aforesaid it was egg laying dispatch More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to come after accommodate.
Investors nerve-wracking to realise how trench the downturn could be May count lessons from some other diligence fastened to spheric trade good prices: excavation equipment manufacturing.
Companies equivalent Caterpillar INC. sawing machine a bounteous leap out in gross sales a few eld spinal column when China-led postulate sent the terms of industrial commodities soaring.
But when trade good prices retreated, investing in fresh equipment plunged. Eventide today -- with mine production convalescent along with fuzz and smoothing iron ore prices -- Cat says sales to the industry go on to tumble as miners "sweat" the machines they already own.
The lesson, De Maria says, is that grow machinery gross sales could abide for long time - even out if grain prices take a hop because of high-risk endure or early changes in add.
Some argue, however, the pessimists are unseasonable.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Golden State investiture steadfastly that recently 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 fold to showrooms lured by what Fall guy Nelson, WHO grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Viscount Nelson traded in his John Deere coalesce with 1,000 hours on it for single with but 400 hours on it. The dispute in terms between the deuce machines was but o'er $100,000 - and the principal offered to impart Admiral Nelson that summation interest-detached 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. (Redaction by Jacques Louis David Greising and Tomasz Janowski)