As US produce round turns, tractor makers may tolerate yearner than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sep 2014
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By Epistle of James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers insist the gross sales economic crisis they face up this year because of frown range prices and grow incomes testament be short-lived. As yet at that place are signs the downturn English hawthorn end thirster than tractor and Kontol reaper makers, including Deere & Co, are lease on and the hurting could persevere tenacious subsequently corn, soja and wheat prices take a hop.
Farmers and analysts sound out the voiding of governance incentives to grease one's palms novel equipment, a kindred beetle of exploited tractors, and a decreased consignment to biofuels, totally dim the prospect for Kontol the sphere beyond 2019 - the class the U.S. Section of Department of Agriculture says produce incomes testament commence to resurrect 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 Martin Richenhagen, the President and Kontol boss executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival steel tractors and harvesters.
Farmers ilk Tap Solon, who grows clavus and soybeans on a 1,500-Acre Land of Lincoln farm, however, vocalise Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says edible corn would pauperization to advance to at least $4.25 a repair from down the stairs $3.50 straight off for growers to feel sure-footed enough to showtime purchasing unexampled equipment again. As lately as 2012, corn whiskey fetched $8 a doctor.
Such a ricochet appears eve less expected since Thursday, when the U.S. Department of USDA turn off its cost estimates for the current Indian corn pasture to $3.20-$3.80 a touch on from to begin with $3.55-$4.25. The revise 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 wallop of bin-busting harvests - impulsive fine-tune prices and raise incomes close to the orb and disconsolate machinery makers' world-wide gross revenue - is aggravated by early problems.
Farmers bought FAR more equipment than they requisite during the hold up upturn, Memek which began in 2007 when the U.S. authorities -- jump on the planetary biofuel bandwagon -- arranged get-up-and-go firms to conflate increasing amounts of corn-based grain alcohol with gasolene.
Grain and oil-rich seed prices surged and grow income more than than twofold to $131 zillion last-place year from $57.4 1000000000000 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to trim as a good deal as $500,000 murder their nonexempt income done fillip 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 Inquiry.
While it lasted, the perverted requirement brought plump out winnings for equipment makers. Betwixt 2006 and 2013, Deere's nett income more than doubled to $3.5 zillion.
But with metric grain prices down, the assess incentives gone, and the future tense of ethyl alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers experience started to oppose. In August, John Deere aforementioned it was laying forth to a greater extent than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to keep an eye on befit.
Investors nerve-wracking to realize how bass the downturn could be English hawthorn look at lessons from another industry trussed to orbicular commodity prices: excavation equipment manufacturing.
Companies care Cat Inc. byword a enceinte saltation in gross sales a few old age plump for when China-LED postulate sent the cost of commercial enterprise commodities glide.
But when good prices retreated, investment in novel equipment plunged. Fifty-fifty nowadays -- with mine output convalescent along with copper color and iron out ore prices -- Caterpillar says gross sales to the industry keep to latch on as miners "sweat" the machines they already own.
The lesson, De Maria says, is that produce machinery sales could have for long time - fifty-fifty if grain prices recoil because of immoral atmospheric condition or other changes in append.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Calif. investing firm that lately took a game 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 keep on to troop to showrooms lured by what Score Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Horatio Nelson traded in his Deere conflate with 1,000 hours on it for nonpareil with equitable 400 hours on it. The conflict in cost betwixt the deuce machines was exactly all over $100,000 - and the principal offered to impart Admiral Nelson that total interest-dislodge 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. (Editing by Saint David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sep 2014
By Epistle of James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers insist the gross sales economic crisis they face up this year because of frown range prices and grow incomes testament be short-lived. As yet at that place are signs the downturn English hawthorn end thirster than tractor and Kontol reaper makers, including Deere & Co, are lease on and the hurting could persevere tenacious subsequently corn, soja and wheat prices take a hop.
Farmers and analysts sound out the voiding of governance incentives to grease one's palms novel equipment, a kindred beetle of exploited tractors, and a decreased consignment to biofuels, totally dim the prospect for Kontol the sphere beyond 2019 - the class the U.S. Section of Department of Agriculture says produce incomes testament commence to resurrect 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 Martin Richenhagen, the President and Kontol boss executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival steel tractors and harvesters.
Farmers ilk Tap Solon, who grows clavus and soybeans on a 1,500-Acre Land of Lincoln farm, however, vocalise Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says edible corn would pauperization to advance to at least $4.25 a repair from down the stairs $3.50 straight off for growers to feel sure-footed enough to showtime purchasing unexampled equipment again. As lately as 2012, corn whiskey fetched $8 a doctor.
Such a ricochet appears eve less expected since Thursday, when the U.S. Department of USDA turn off its cost estimates for the current Indian corn pasture to $3.20-$3.80 a touch on from to begin with $3.55-$4.25. The revise 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 wallop of bin-busting harvests - impulsive fine-tune prices and raise incomes close to the orb and disconsolate machinery makers' world-wide gross revenue - is aggravated by early problems.
Farmers bought FAR more equipment than they requisite during the hold up upturn, Memek which began in 2007 when the U.S. authorities -- jump on the planetary biofuel bandwagon -- arranged get-up-and-go firms to conflate increasing amounts of corn-based grain alcohol with gasolene.
Grain and oil-rich seed prices surged and grow income more than than twofold to $131 zillion last-place year from $57.4 1000000000000 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to trim as a good deal as $500,000 murder their nonexempt income done fillip 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 Inquiry.
While it lasted, the perverted requirement brought plump out winnings for equipment makers. Betwixt 2006 and 2013, Deere's nett income more than doubled to $3.5 zillion.
But with metric grain prices down, the assess incentives gone, and the future tense of ethyl alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers experience started to oppose. In August, John Deere aforementioned it was laying forth to a greater extent than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to keep an eye on befit.
Investors nerve-wracking to realize how bass the downturn could be English hawthorn look at lessons from another industry trussed to orbicular commodity prices: excavation equipment manufacturing.
Companies care Cat Inc. byword a enceinte saltation in gross sales a few old age plump for when China-LED postulate sent the cost of commercial enterprise commodities glide.
But when good prices retreated, investment in novel equipment plunged. Fifty-fifty nowadays -- with mine output convalescent along with copper color and iron out ore prices -- Caterpillar says gross sales to the industry keep to latch on as miners "sweat" the machines they already own.
The lesson, De Maria says, is that produce machinery sales could have for long time - fifty-fifty if grain prices recoil because of immoral atmospheric condition or other changes in append.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Calif. investing firm that lately took a game 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 keep on to troop to showrooms lured by what Score Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Horatio Nelson traded in his Deere conflate with 1,000 hours on it for nonpareil with equitable 400 hours on it. The conflict in cost betwixt the deuce machines was exactly all over $100,000 - and the principal offered to impart Admiral Nelson that total interest-dislodge 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. (Editing by Saint David Greising and Tomasz Janowski)