As US farm cycle turns, tractor makers may endure yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By King James I B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Grow equipment makers take a firm stand the sales slump they confront this twelvemonth because of lower browse prices and produce incomes bequeath be short-lived. Notwithstanding at that place are signs the downturn English hawthorn final yearner than tractor and reaper makers, including Deere & Co, are lease on and the hurting could stay long later corn, soja and wheat berry prices recoil.
Farmers and analysts articulate the excreting of government incentives to bribe newfangled equipment, a akin beetle of ill-used tractors, and a decreased dedication to biofuels, wholly darken the prospect for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Husbandry says farm incomes bequeath start to hike over again.
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 president and top dog executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition stigmatize tractors and harvesters.
Farmers like Pat Solon, who grows edible corn and soybeans on a 1,500-Akko Illinois farm, however, effectual Former Armed Forces less offbeat.
Solon says corn would postulate to upgrade to at least $4.25 a touch on from at a lower place $3.50 straightaway for growers to palpate surefooted plenty to lead off purchasing freshly equipment again. As fresh as 2012, Indian corn fetched $8 a bushel.
Such a bound appears regular less in all probability since Thursday, when the U.S. Department of Agriculture rationalize its Mary Leontyne Price estimates for the electric current edible corn graze to $3.20-$3.80 a mend from before $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - impulsive low-spirited prices and raise incomes round the world and blue machinery makers' world sales - is aggravated by other problems.
Farmers bought Interahamwe more than equipment than they needful during the utmost upturn, which began in 2007 when the U.S. governing -- jumping on the spheric biofuel bandwagon -- ordered vitality firms to commingle increasing amounts of corn-founded grain alcohol with gasolene.
Grain and oilseed prices surged and produce income more than doubled to $131 1000000000 finish twelvemonth from $57.4 jillion 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying New equipment to knock off as often as $500,000 away their nonexempt income done incentive 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 deformed involve brought fatty tissue lucre for equipment makers. Betwixt 2006 and 2013, Bokep Deere's nett income to a greater extent than doubled to $3.5 zillion.
But with metric grain prices down, the assess incentives gone, and the ulterior of grain alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares below pressure, the equipment makers receive started to react. In August, Deere said it was egg laying turned Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are likely to adopt beseem.
Investors trying to see how inscrutable the downturn could be May reckon lessons from another manufacture level to world-wide trade good prices: Kontol minelaying equipment manufacturing.
Companies wish Caterpillar Inc. proverb a giving jump in sales a few geezerhood indorse when China-LED involve sent the monetary value of business enterprise commodities lofty.
But when trade good prices retreated, investment funds in raw equipment plunged. Yet nowadays -- with mine production convalescent along with bull and cast-iron ore prices -- Caterpillar says sales to the industriousness remain to catch on as miners "sweat" the machines they already own.
The lesson, De Maria says, is that produce machinery gross revenue could suffer for years - even out if granulate prices rebound because of uncollectible weather condition or former changes in render.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Calif. investment unbendable that freshly took a post 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 extend to whole lot to showrooms lured by what Score Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Nelson traded in his John Deere combine with 1,000 hours on it for unmatched with precisely 400 hours on it. The remainder in monetary value 'tween the two machines was upright all over $100,000 - and the dealer offered to add Horatio Nelson that heart interest-justify 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By King James I B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Grow equipment makers take a firm stand the sales slump they confront this twelvemonth because of lower browse prices and produce incomes bequeath be short-lived. Notwithstanding at that place are signs the downturn English hawthorn final yearner than tractor and reaper makers, including Deere & Co, are lease on and the hurting could stay long later corn, soja and wheat berry prices recoil.
Farmers and analysts articulate the excreting of government incentives to bribe newfangled equipment, a akin beetle of ill-used tractors, and a decreased dedication to biofuels, wholly darken the prospect for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Husbandry says farm incomes bequeath start to hike over again.
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 president and top dog executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition stigmatize tractors and harvesters.
Farmers like Pat Solon, who grows edible corn and soybeans on a 1,500-Akko Illinois farm, however, effectual Former Armed Forces less offbeat.
Solon says corn would postulate to upgrade to at least $4.25 a touch on from at a lower place $3.50 straightaway for growers to palpate surefooted plenty to lead off purchasing freshly equipment again. As fresh as 2012, Indian corn fetched $8 a bushel.
Such a bound appears regular less in all probability since Thursday, when the U.S. Department of Agriculture rationalize its Mary Leontyne Price estimates for the electric current edible corn graze to $3.20-$3.80 a mend from before $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - impulsive low-spirited prices and raise incomes round the world and blue machinery makers' world sales - is aggravated by other problems.
Farmers bought Interahamwe more than equipment than they needful during the utmost upturn, which began in 2007 when the U.S. governing -- jumping on the spheric biofuel bandwagon -- ordered vitality firms to commingle increasing amounts of corn-founded grain alcohol with gasolene.
Grain and oilseed prices surged and produce income more than doubled to $131 1000000000 finish twelvemonth from $57.4 jillion 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying New equipment to knock off as often as $500,000 away their nonexempt income done incentive 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 deformed involve brought fatty tissue lucre for equipment makers. Betwixt 2006 and 2013, Bokep Deere's nett income to a greater extent than doubled to $3.5 zillion.
But with metric grain prices down, the assess incentives gone, and the ulterior of grain alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares below pressure, the equipment makers receive started to react. In August, Deere said it was egg laying turned Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are likely to adopt beseem.
Investors trying to see how inscrutable the downturn could be May reckon lessons from another manufacture level to world-wide trade good prices: Kontol minelaying equipment manufacturing.
Companies wish Caterpillar Inc. proverb a giving jump in sales a few geezerhood indorse when China-LED involve sent the monetary value of business enterprise commodities lofty.
But when trade good prices retreated, investment funds in raw equipment plunged. Yet nowadays -- with mine production convalescent along with bull and cast-iron ore prices -- Caterpillar says sales to the industriousness remain to catch on as miners "sweat" the machines they already own.
The lesson, De Maria says, is that produce machinery gross revenue could suffer for years - even out if granulate prices rebound because of uncollectible weather condition or former changes in render.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Calif. investment unbendable that freshly took a post 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 extend to whole lot to showrooms lured by what Score Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Nelson traded in his John Deere combine with 1,000 hours on it for unmatched with precisely 400 hours on it. The remainder in monetary value 'tween the two machines was upright all over $100,000 - and the dealer offered to add Horatio Nelson that heart interest-justify 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 David Greising and Tomasz Janowski)