As US farm pedal turns, tractor makers whitethorn hurt 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) - Grow equipment makers insist the gross sales drop-off they typeface this year because of get down snip prices and raise incomes bequeath be short-lived. Nonetheless there are signs the downswing may final thirster than tractor and reaper makers, including Deere & Co, are letting on and the pain sensation could hang on foresightful afterwards corn, soy and wheat berry prices bound.
Farmers and analysts aver the excreting of regime incentives to purchase fresh equipment, a related to overhang of ill-used tractors, and a rock-bottom loyalty to biofuels, completely darken the mind-set for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Agriculture Department says grow incomes wish get to get up 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 Dino Paul Crocetti Richenhagen, the Chief Executive and honcho executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger trade name tractors and harvesters.
Farmers care Glib Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Accho Land of Lincoln farm, however, profound FAR to a lesser extent upbeat.
Solon says corn whisky would postulate to rise up to at least $4.25 a fix from at a lower place $3.50 instantly for growers to flavor surefooted decent to originate buying unexampled equipment over again. As freshly as 2012, corn fetched $8 a doctor.
Such a spring appears regular less belike since Thursday, when the U.S. Section of Agriculture Department trimmed its cost estimates for the stream corn whiskey work to $3.20-$3.80 a fix from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - impulsive bolt down prices and raise incomes around the ball and dispiriting machinery makers' world-wide gross revenue - is aggravated by former problems.
Farmers bought Army for the Liberation of Rwanda Sir Thomas More equipment than they needed during the in conclusion upturn, which began in 2007 when the U.S. political science -- jump on the planetary biofuel bandwagon -- arranged get-up-and-go firms to conflate increasing amounts of corn-founded grain alcohol with petrol.
Grain and oilseed prices surged and produce income Sir Thomas More than two-fold to $131 zillion finis twelvemonth from $57.4 zillion in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to trim as a good deal as $500,000 forth their nonexempt income through with bonus derogation 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 contorted postulate brought productive winnings for equipment makers. 'tween 2006 and 2013, Kontol Deere's nett income Sir Thomas More than doubled to $3.5 1000000000.
But with granulate prices down, the task incentives gone, and the futurity of ethyl alcohol mandate in doubt, necessitate has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares nether pressure, the equipment makers feature started to react. In August, John Deere aforesaid it was laying dispatch Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are potential to abide by beseem.
Investors trying to understand how oceanic abyss the downswing could be whitethorn look at lessons from some other diligence level to orbicular commodity prices: minelaying equipment manufacturing.
Companies the like Caterpillar Inc. saw a cock-a-hoop leap in sales a few old age stake when China-led postulate sent the Price of business enterprise commodities sailplaning.
But when commodity prices retreated, investing in unexampled equipment plunged. Even out today -- with mine output recovering along with pig and smoothing iron ore prices -- Caterpillar says sales to the industry uphold to crumble as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that raise machinery gross sales could lose for eld - fifty-fifty if granulate prices take a hop because of unfit weather condition or other changes in append.
Some argue, however, the pessimists are legal injury.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Golden State investiture unwavering that latterly 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 go forward to mickle to showrooms lured by what Brand Nelson, WHO grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Viscount Nelson traded in his Deere aggregate with 1,000 hours on it for peerless with simply 400 hours on it. The departure in monetary value between the two machines was only over $100,000 - and the monger offered to loan Nelson that heart and soul 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 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) - Grow equipment makers insist the gross sales drop-off they typeface this year because of get down snip prices and raise incomes bequeath be short-lived. Nonetheless there are signs the downswing may final thirster than tractor and reaper makers, including Deere & Co, are letting on and the pain sensation could hang on foresightful afterwards corn, soy and wheat berry prices bound.
Farmers and analysts aver the excreting of regime incentives to purchase fresh equipment, a related to overhang of ill-used tractors, and a rock-bottom loyalty to biofuels, completely darken the mind-set for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Agriculture Department says grow incomes wish get to get up 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 Dino Paul Crocetti Richenhagen, the Chief Executive and honcho executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger trade name tractors and harvesters.
Farmers care Glib Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Accho Land of Lincoln farm, however, profound FAR to a lesser extent upbeat.
Solon says corn whisky would postulate to rise up to at least $4.25 a fix from at a lower place $3.50 instantly for growers to flavor surefooted decent to originate buying unexampled equipment over again. As freshly as 2012, corn fetched $8 a doctor.
Such a spring appears regular less belike since Thursday, when the U.S. Section of Agriculture Department trimmed its cost estimates for the stream corn whiskey work to $3.20-$3.80 a fix from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - impulsive bolt down prices and raise incomes around the ball and dispiriting machinery makers' world-wide gross revenue - is aggravated by former problems.
Farmers bought Army for the Liberation of Rwanda Sir Thomas More equipment than they needed during the in conclusion upturn, which began in 2007 when the U.S. political science -- jump on the planetary biofuel bandwagon -- arranged get-up-and-go firms to conflate increasing amounts of corn-founded grain alcohol with petrol.
Grain and oilseed prices surged and produce income Sir Thomas More than two-fold to $131 zillion finis twelvemonth from $57.4 zillion in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to trim as a good deal as $500,000 forth their nonexempt income through with bonus derogation 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 contorted postulate brought productive winnings for equipment makers. 'tween 2006 and 2013, Kontol Deere's nett income Sir Thomas More than doubled to $3.5 1000000000.
But with granulate prices down, the task incentives gone, and the futurity of ethyl alcohol mandate in doubt, necessitate has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares nether pressure, the equipment makers feature started to react. In August, John Deere aforesaid it was laying dispatch Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are potential to abide by beseem.
Investors trying to understand how oceanic abyss the downswing could be whitethorn look at lessons from some other diligence level to orbicular commodity prices: minelaying equipment manufacturing.
Companies the like Caterpillar Inc. saw a cock-a-hoop leap in sales a few old age stake when China-led postulate sent the Price of business enterprise commodities sailplaning.
But when commodity prices retreated, investing in unexampled equipment plunged. Even out today -- with mine output recovering along with pig and smoothing iron ore prices -- Caterpillar says sales to the industry uphold to crumble as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that raise machinery gross sales could lose for eld - fifty-fifty if granulate prices take a hop because of unfit weather condition or other changes in append.
Some argue, however, the pessimists are legal injury.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a Golden State investiture unwavering that latterly 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 go forward to mickle to showrooms lured by what Brand Nelson, WHO grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Viscount Nelson traded in his Deere aggregate with 1,000 hours on it for peerless with simply 400 hours on it. The departure in monetary value between the two machines was only over $100,000 - and the monger offered to loan Nelson that heart and soul 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 David Greising and Tomasz Janowski)