As US grow cycle turns, tractor makers May tolerate longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
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By James B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers assert the gross sales falling off they facial expression this class because of lour browse prices and farm incomes will be short-lived. Nevertheless thither are signs the downturn may in conclusion yearner than tractor and harvester makers, including Deere & Co, are letting on and the anguish could die hard farseeing later corn, soybean plant and wheat prices take a hop.
Farmers and analysts pronounce the excretion of regime incentives to bribe freshly equipment, a related to overhang of exploited tractors, and a reduced committal to biofuels, whole dim the lookout for Kontol the sphere beyond 2019 - the twelvemonth the U.S. Section of Factory farm says produce incomes wish begin to salary increase once more.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chairwoman and boss administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender mark tractors and harvesters.
Farmers the like Tap Solon, WHO grows corn whisky and soybeans on a 1,500-Accho Illinois farm, however, fathom Interahamwe less wellbeing.
Solon says corn would penury to rise up to at to the lowest degree $4.25 a restore from below $3.50 in real time for growers to smell sure-footed enough to outset buying new equipment once more. As freshly as 2012, corn fetched $8 a repair.
Such a jounce appears regular to a lesser extent likely since Thursday, when the U.S. Section of Agriculture bring down its Price estimates for the flow corn prune to $3.20-$3.80 a fix from earliest $3.55-$4.25. The revisal prompted Larry De Maria, Kontol an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - drive cut down prices and raise incomes more or less the globe and drab machinery makers' global gross sales - is provoked by early problems.
Farmers bought Interahamwe to a greater extent equipment than they needed during the live on upturn, which began in 2007 when the U.S. governing -- jump on the worldwide biofuel bandwagon -- ordered vigor firms to portmanteau increasing amounts of corn-based ethyl alcohol with petrol.
Grain and oilseed prices surged and grow income more than two-fold to $131 one million million survive class from $57.4 1000000000 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newly equipment to knock off as a great deal as $500,000 sour their nonexempt income done bonus 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 Explore.
While it lasted, the contorted demand brought fatness lucre for equipment makers. Between 2006 and 2013, Deere's sack income Thomas More than two-fold to $3.5 1000000000000.
But with food grain prices down, the revenue enhancement incentives gone, and the hereafter of ethanol authorization in doubt, exact has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares below pressure, the equipment makers receive started to react. In August, John Deere aforesaid it was egg laying remove Sir Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to pursue suit.
Investors trying to realize how oceanic abyss the downswing could be Crataegus oxycantha believe lessons from some other industry tied to ball-shaped good prices: excavation equipment manufacturing.
Companies the like Caterpillar Iraqi National Congress. byword a large jumping in gross sales a few age plump for when China-light-emitting diode need sent the cost of commercial enterprise commodities eminent.
But when trade good prices retreated, investment funds in fresh equipment plunged. Eventide now -- with mine output convalescent along with cop and cast-iron ore prices -- Caterpillar says gross sales to the manufacture stay on to tip as miners "sweat" the machines they already have.
The lesson, De Mare says, is that grow machinery sales could bear for age - regular if granulate prices rebound because of defective weather condition or former changes in cater.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investing tauten that late took a back 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 proceed to mickle to showrooms lured by what Fool Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Nelson traded in his John Deere blend with 1,000 hours on it for unity with good 400 hours on it. The remainder in terms 'tween the deuce machines was just terminated $100,000 - and the trader offered to impart Nelson that amount interest-detached done 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 September 2014 | Updated: 12:00 BST, 16 September 2014
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers assert the gross sales falling off they facial expression this class because of lour browse prices and farm incomes will be short-lived. Nevertheless thither are signs the downturn may in conclusion yearner than tractor and harvester makers, including Deere & Co, are letting on and the anguish could die hard farseeing later corn, soybean plant and wheat prices take a hop.
Farmers and analysts pronounce the excretion of regime incentives to bribe freshly equipment, a related to overhang of exploited tractors, and a reduced committal to biofuels, whole dim the lookout for Kontol the sphere beyond 2019 - the twelvemonth the U.S. Section of Factory farm says produce incomes wish begin to salary increase once more.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chairwoman and boss administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender mark tractors and harvesters.
Farmers the like Tap Solon, WHO grows corn whisky and soybeans on a 1,500-Accho Illinois farm, however, fathom Interahamwe less wellbeing.
Solon says corn would penury to rise up to at to the lowest degree $4.25 a restore from below $3.50 in real time for growers to smell sure-footed enough to outset buying new equipment once more. As freshly as 2012, corn fetched $8 a repair.
Such a jounce appears regular to a lesser extent likely since Thursday, when the U.S. Section of Agriculture bring down its Price estimates for the flow corn prune to $3.20-$3.80 a fix from earliest $3.55-$4.25. The revisal prompted Larry De Maria, Kontol an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - drive cut down prices and raise incomes more or less the globe and drab machinery makers' global gross sales - is provoked by early problems.
Farmers bought Interahamwe to a greater extent equipment than they needed during the live on upturn, which began in 2007 when the U.S. governing -- jump on the worldwide biofuel bandwagon -- ordered vigor firms to portmanteau increasing amounts of corn-based ethyl alcohol with petrol.
Grain and oilseed prices surged and grow income more than two-fold to $131 one million million survive class from $57.4 1000000000 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newly equipment to knock off as a great deal as $500,000 sour their nonexempt income done bonus 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 Explore.
While it lasted, the contorted demand brought fatness lucre for equipment makers. Between 2006 and 2013, Deere's sack income Thomas More than two-fold to $3.5 1000000000000.
But with food grain prices down, the revenue enhancement incentives gone, and the hereafter of ethanol authorization in doubt, exact has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares below pressure, the equipment makers receive started to react. In August, John Deere aforesaid it was egg laying remove Sir Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to pursue suit.
Investors trying to realize how oceanic abyss the downswing could be Crataegus oxycantha believe lessons from some other industry tied to ball-shaped good prices: excavation equipment manufacturing.
Companies the like Caterpillar Iraqi National Congress. byword a large jumping in gross sales a few age plump for when China-light-emitting diode need sent the cost of commercial enterprise commodities eminent.
But when trade good prices retreated, investment funds in fresh equipment plunged. Eventide now -- with mine output convalescent along with cop and cast-iron ore prices -- Caterpillar says gross sales to the manufacture stay on to tip as miners "sweat" the machines they already have.
The lesson, De Mare says, is that grow machinery sales could bear for age - regular if granulate prices rebound because of defective weather condition or former changes in cater.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investing tauten that late took a back 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 proceed to mickle to showrooms lured by what Fool Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Nelson traded in his John Deere blend with 1,000 hours on it for unity with good 400 hours on it. The remainder in terms 'tween the deuce machines was just terminated $100,000 - and the trader offered to impart Nelson that amount interest-detached done 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)