As US grow bike turns, tractor makers whitethorn lose longer than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue sink they confront this twelvemonth because of get down lop prices and farm incomes will be short-lived. So far in that location are signs the downswing may utmost yearner than tractor and reaper makers, including John Deere & Co, are lease on and the pain in the ass could die hard farseeing later on corn, soya bean and wheat berry prices resile.
Farmers and analysts aver the liquidation of government incentives to grease one's palms fresh equipment, a related to overhang of victimized tractors, and a reduced dedication to biofuels, altogether dim the mind-set for the sector on the far side 2019 - the class the U.S. Department of Factory farm says raise incomes volition set out to wage hike 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 chair and primary administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigmatize tractors and harvesters.
Farmers equal Pat Solon, who grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, profound far to a lesser extent eudaemonia.
Solon says corn whisky would penury to boost to at least $4.25 a mend from downstairs $3.50 straightaway for growers to feeling convinced sufficiency to set off purchasing newfangled equipment once more. As late as 2012, clavus fetched $8 a touch on.
Such a bound appears evening to a lesser extent potential since Thursday, when the U.S. Department of Department of Agriculture ignore its damage estimates for the current clavus lop to $3.20-$3.80 a bushel from before $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive drink down prices and raise incomes more or less the Earth and depressing machinery makers' oecumenical sales - is aggravated by other problems.
Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needed during the last upturn, which began in 2007 when the U.S. governance -- jumping on the global biofuel bandwagon -- orderly DOE firms to blending increasing amounts of corn-based ethanol with gasoline.
Grain and oil-rich seed prices surged and produce income more than doubled to $131 million last class from $57.4 1000000000000 in 2006, according to Agriculture Department.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, Kontol U.S. incentives allowed growers purchasing fresh equipment to trim as a great deal as $500,000 murder their nonexempt income done bonus depreciation 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 Research.
While it lasted, the twisted necessitate brought avoirdupois win for equipment makers. 'tween 2006 and 2013, Deere's sack up income More than doubled to $3.5 1000000000.
But with granulate prices down, the task incentives gone, and the future tense of ethanol mandatory in doubt, require has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares under pressure, the equipment makers suffer started to react. In August, Deere aforesaid it was egg laying away more than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to postdate wooing.
Investors nerve-racking to understand how trench the downswing could be English hawthorn moot lessons from another industry trussed to spheric trade good prices: mining equipment manufacturing.
Companies corresponding Caterpillar INC. proverb a expectant leap in gross sales a few age spinal column when China-LED exact sent the cost of commercial enterprise commodities sailing.
But when trade good prices retreated, investment funds in unexampled equipment plunged. Level today -- with mine production recovering along with copper color and branding iron ore prices -- Cat says sales to the diligence preserve to break down as miners "sweat" the machines they already own.
The lesson, De Maria says, is that grow machinery gross revenue could tolerate for old age - level if caryopsis prices resile because of unfit atmospheric condition or early changes in append.
Some argue, however, the pessimists are wrongly.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investiture unwaveringly that of late 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 carry on to deal to showrooms lured by what Print Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his Deere cartel with 1,000 hours on it for matchless with only 400 hours on it. The difference of opinion in price betwixt the deuce machines was exactly concluded $100,000 - and the monger offered to add Lord Nelson that heart and soul interest-relinquish through 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 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue sink they confront this twelvemonth because of get down lop prices and farm incomes will be short-lived. So far in that location are signs the downswing may utmost yearner than tractor and reaper makers, including John Deere & Co, are lease on and the pain in the ass could die hard farseeing later on corn, soya bean and wheat berry prices resile.
Farmers and analysts aver the liquidation of government incentives to grease one's palms fresh equipment, a related to overhang of victimized tractors, and a reduced dedication to biofuels, altogether dim the mind-set for the sector on the far side 2019 - the class the U.S. Department of Factory farm says raise incomes volition set out to wage hike 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 chair and primary administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigmatize tractors and harvesters.
Farmers equal Pat Solon, who grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, profound far to a lesser extent eudaemonia.
Solon says corn whisky would penury to boost to at least $4.25 a mend from downstairs $3.50 straightaway for growers to feeling convinced sufficiency to set off purchasing newfangled equipment once more. As late as 2012, clavus fetched $8 a touch on.
Such a bound appears evening to a lesser extent potential since Thursday, when the U.S. Department of Department of Agriculture ignore its damage estimates for the current clavus lop to $3.20-$3.80 a bushel from before $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive drink down prices and raise incomes more or less the Earth and depressing machinery makers' oecumenical sales - is aggravated by other problems.
Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needed during the last upturn, which began in 2007 when the U.S. governance -- jumping on the global biofuel bandwagon -- orderly DOE firms to blending increasing amounts of corn-based ethanol with gasoline.
Grain and oil-rich seed prices surged and produce income more than doubled to $131 million last class from $57.4 1000000000000 in 2006, according to Agriculture Department.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, Kontol U.S. incentives allowed growers purchasing fresh equipment to trim as a great deal as $500,000 murder their nonexempt income done bonus depreciation 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 Research.
While it lasted, the twisted necessitate brought avoirdupois win for equipment makers. 'tween 2006 and 2013, Deere's sack up income More than doubled to $3.5 1000000000.
But with granulate prices down, the task incentives gone, and the future tense of ethanol mandatory in doubt, require has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares under pressure, the equipment makers suffer started to react. In August, Deere aforesaid it was egg laying away more than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to postdate wooing.
Investors nerve-racking to understand how trench the downswing could be English hawthorn moot lessons from another industry trussed to spheric trade good prices: mining equipment manufacturing.
Companies corresponding Caterpillar INC. proverb a expectant leap in gross sales a few age spinal column when China-LED exact sent the cost of commercial enterprise commodities sailing.
But when trade good prices retreated, investment funds in unexampled equipment plunged. Level today -- with mine production recovering along with copper color and branding iron ore prices -- Cat says sales to the diligence preserve to break down as miners "sweat" the machines they already own.
The lesson, De Maria says, is that grow machinery gross revenue could tolerate for old age - level if caryopsis prices resile because of unfit atmospheric condition or early changes in append.
Some argue, however, the pessimists are wrongly.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investiture unwaveringly that of late 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 carry on to deal to showrooms lured by what Print Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his Deere cartel with 1,000 hours on it for matchless with only 400 hours on it. The difference of opinion in price betwixt the deuce machines was exactly concluded $100,000 - and the monger offered to add Lord Nelson that heart and soul interest-relinquish through 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)