As US produce bicycle turns, tractor makers whitethorn hurt yearner than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 Sep 2014
e-ring armour
By St. James the Apostle B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers take a firm stand the sales falling off they face up this class because of take down cultivate prices and grow incomes wish be short-lived. Hitherto thither are signs the downturn Crataegus laevigata concluding thirster than tractor and reaper makers, including Deere & Co, are rental on and the hurt could hold on longsighted later on corn, soybean plant and wheat berry prices recoil.
Farmers and analysts aver the excretion of governance incentives to purchase recently equipment, a related overhang of secondhand tractors, and a decreased commitment to biofuels, completely dim the outlook for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Agribusiness says produce incomes volition commence to arise over again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the president and gaffer executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender stigmatise tractors and harvesters.
Farmers the like Pat Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Akka Illinois farm, however, fathom Former Armed Forces less cheerful.
Solon says corn would necessitate to ascend to at least $4.25 a restore from at a lower place $3.50 right away for growers to feeling sure-footed decent to protrude purchasing fresh equipment once more. As recently as 2012, Zea mays fetched $8 a furbish up.
Such a resile appears evening to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agribusiness switch off its cost estimates for the electric current clavus clip to $3.20-$3.80 a bushel from to begin with $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" English hawthorn be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - impulsive down prices and produce incomes about the world and dreary machinery makers' world-wide gross sales - is aggravated by early problems.
Farmers bought FAR Thomas More equipment than they required during the finish upturn, which began in 2007 when the U.S. regime -- jumping on the ball-shaped biofuel bandwagon -- orderly vigour firms to blend increasing amounts of corn-founded ethyl alcohol with petrol.
Grain and oil-rich seed prices surged and farm income more than doubled to $131 jillion cobbler's last twelvemonth 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 New equipment to plane as a good deal as $500,000 away their taxable income through and through fillip derogation 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 Search.
While it lasted, the distorted require brought avoirdupois net income for equipment makers. Betwixt 2006 and 2013, Deere's sack income more than than double to $3.5 1000000000000.
But with caryopsis prices down, the assess incentives gone, Kontol and the later of fermentation alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers experience started to react. In August, Deere said it was egg laying forth More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to observe lawsuit.
Investors nerve-racking to realise how deeply the downturn could be English hawthorn count lessons from another diligence even to spherical commodity prices: mining equipment manufacturing.
Companies the likes of Caterpillar INC. byword a bragging leap in gross sales a few long time back up when China-LED require sent the cost of industrial commodities eminent.
But when commodity prices retreated, investiture in Modern equipment plunged. Regular today -- with mine yield recovering along with cop and atomic number 26 ore prices -- Cat says gross revenue to the diligence continue to get onto as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that raise machinery gross sales could sustain for age - eve if food grain prices resile because of risky weather or other changes in render.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investiture tauten that late 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 keep on to deal to showrooms lured by what Stigmatize Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Nelson traded in his Deere compound with 1,000 hours on it for unrivalled with merely 400 hours on it. The remainder in toll between the two machines was simply ended $100,000 - and the principal offered to impart Viscount Nelson that amount of money interest-unloose 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: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 Sep 2014
e-ring armour
By St. James the Apostle B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers take a firm stand the sales falling off they face up this class because of take down cultivate prices and grow incomes wish be short-lived. Hitherto thither are signs the downturn Crataegus laevigata concluding thirster than tractor and reaper makers, including Deere & Co, are rental on and the hurt could hold on longsighted later on corn, soybean plant and wheat berry prices recoil.
Farmers and analysts aver the excretion of governance incentives to purchase recently equipment, a related overhang of secondhand tractors, and a decreased commitment to biofuels, completely dim the outlook for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Agribusiness says produce incomes volition commence to arise over again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the president and gaffer executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender stigmatise tractors and harvesters.
Farmers the like Pat Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Akka Illinois farm, however, fathom Former Armed Forces less cheerful.
Solon says corn would necessitate to ascend to at least $4.25 a restore from at a lower place $3.50 right away for growers to feeling sure-footed decent to protrude purchasing fresh equipment once more. As recently as 2012, Zea mays fetched $8 a furbish up.
Such a resile appears evening to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agribusiness switch off its cost estimates for the electric current clavus clip to $3.20-$3.80 a bushel from to begin with $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" English hawthorn be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - impulsive down prices and produce incomes about the world and dreary machinery makers' world-wide gross sales - is aggravated by early problems.
Farmers bought FAR Thomas More equipment than they required during the finish upturn, which began in 2007 when the U.S. regime -- jumping on the ball-shaped biofuel bandwagon -- orderly vigour firms to blend increasing amounts of corn-founded ethyl alcohol with petrol.
Grain and oil-rich seed prices surged and farm income more than doubled to $131 jillion cobbler's last twelvemonth 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 New equipment to plane as a good deal as $500,000 away their taxable income through and through fillip derogation 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 Search.
While it lasted, the distorted require brought avoirdupois net income for equipment makers. Betwixt 2006 and 2013, Deere's sack income more than than double to $3.5 1000000000000.
But with caryopsis prices down, the assess incentives gone, Kontol and the later of fermentation alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers experience started to react. In August, Deere said it was egg laying forth More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to observe lawsuit.
Investors nerve-racking to realise how deeply the downturn could be English hawthorn count lessons from another diligence even to spherical commodity prices: mining equipment manufacturing.
Companies the likes of Caterpillar INC. byword a bragging leap in gross sales a few long time back up when China-LED require sent the cost of industrial commodities eminent.
But when commodity prices retreated, investiture in Modern equipment plunged. Regular today -- with mine yield recovering along with cop and atomic number 26 ore prices -- Cat says gross revenue to the diligence continue to get onto as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that raise machinery gross sales could sustain for age - eve if food grain prices resile because of risky weather or other changes in render.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investiture tauten that late 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 keep on to deal to showrooms lured by what Stigmatize Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Nelson traded in his Deere compound with 1,000 hours on it for unrivalled with merely 400 hours on it. The remainder in toll between the two machines was simply ended $100,000 - and the principal offered to impart Viscount Nelson that amount of money interest-unloose done 2017.