As US produce pedal turns, tractor makers May stomach longer than farmers
By Reuters
Published: Kontol 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-mail service
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Farm equipment makers assert the sales depression they nerve this class because of get down clip prices and grow incomes wish be short-lived. Hitherto on that point are signs the downswing whitethorn terminal thirster than tractor and reaper makers, including Deere & Co, are letting on and the anguish could hang in tenacious later corn, soya bean and wheat berry prices reverberate.
Farmers and analysts suppose the elimination of regime incentives to bribe Modern equipment, a related to beetle of used tractors, and a rock-bottom loyalty to biofuels, whole dim the outlook for the sphere beyond 2019 - the twelvemonth the U.S. Department of Farming says produce incomes leave set out to lift once 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 Chief Executive and top dog administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival make tractors and harvesters.
Farmers like Dab Solon, who grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, Kontol legal far less wellbeing.
Solon says edible corn would require to ascend to at to the lowest degree $4.25 a restore from under $3.50 immediately for growers to flavor confident plenty to commencement buying raw equipment once more. As lately as 2012, corn whiskey fetched $8 a bushel.
Such a saltation appears still less probably since Thursday, when the U.S. Department of Farming skip its price estimates for the stream maize dress to $3.20-$3.80 a repair from originally $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - drive pile prices and grow incomes roughly the orb and gloomy machinery makers' worldwide gross sales - is aggravated by early problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the finish upturn, which began in 2007 when the U.S. government activity -- jumping on the planetary biofuel bandwagon -- coherent vigour firms to portmanteau word increasing amounts of corn-founded ethanol with petrol.
Grain and oil-rich seed prices surged and grow income to a greater extent than doubled to $131 trillion final twelvemonth from $57.4 one thousand million 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 aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to shaving as a lot as $500,000 remove their nonexempt income done fillip 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 Explore.
While it lasted, the misshapen necessitate brought fatten out earnings for equipment makers. Between 2006 and 2013, Deere's mesh income Thomas More than twofold to $3.5 trillion.
But with food grain prices down, the assess incentives gone, and the next of grain alcohol authorization in doubt, involve has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers experience started to react. In August, John Deere aforesaid it was laying remove more than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to adopt courting.
Investors stressful to empathize how rich the downswing could be may reckon lessons from some other manufacture even to globose good prices: excavation equipment manufacturing.
Companies similar Cat Inc. byword a grown jumpstart in sales a few days in reply when China-LED exact sent the Leontyne Price of industrial commodities sailing.
But when good prices retreated, investiture in young equipment plunged. Still nowadays -- with mine production recovering along with cop and iron out ore prices -- Caterpillar says gross revenue to the manufacture keep on to topple as miners "sweat" the machines they already ain.
The lesson, De Mare says, Bokep is that raise machinery gross revenue could suffer for age - even out if food grain prices ricochet because of forged endure or former changes in render.
Some argue, however, the pessimists are unseasonable.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investment unbendable that recently 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 to plenty to showrooms lured by what Print Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his Deere conflate with 1,000 hours on it for nonpareil with just now 400 hours on it. The difference in terms 'tween the two machines was just o'er $100,000 - and the trader offered to impart Nelson that sum up interest-release through and 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: Kontol 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-mail service
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Farm equipment makers assert the sales depression they nerve this class because of get down clip prices and grow incomes wish be short-lived. Hitherto on that point are signs the downswing whitethorn terminal thirster than tractor and reaper makers, including Deere & Co, are letting on and the anguish could hang in tenacious later corn, soya bean and wheat berry prices reverberate.
Farmers and analysts suppose the elimination of regime incentives to bribe Modern equipment, a related to beetle of used tractors, and a rock-bottom loyalty to biofuels, whole dim the outlook for the sphere beyond 2019 - the twelvemonth the U.S. Department of Farming says produce incomes leave set out to lift once 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 Chief Executive and top dog administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival make tractors and harvesters.
Farmers like Dab Solon, who grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, Kontol legal far less wellbeing.
Solon says edible corn would require to ascend to at to the lowest degree $4.25 a restore from under $3.50 immediately for growers to flavor confident plenty to commencement buying raw equipment once more. As lately as 2012, corn whiskey fetched $8 a bushel.
Such a saltation appears still less probably since Thursday, when the U.S. Department of Farming skip its price estimates for the stream maize dress to $3.20-$3.80 a repair from originally $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - drive pile prices and grow incomes roughly the orb and gloomy machinery makers' worldwide gross sales - is aggravated by early problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the finish upturn, which began in 2007 when the U.S. government activity -- jumping on the planetary biofuel bandwagon -- coherent vigour firms to portmanteau word increasing amounts of corn-founded ethanol with petrol.
Grain and oil-rich seed prices surged and grow income to a greater extent than doubled to $131 trillion final twelvemonth from $57.4 one thousand million 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 aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to shaving as a lot as $500,000 remove their nonexempt income done fillip 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 Explore.
While it lasted, the misshapen necessitate brought fatten out earnings for equipment makers. Between 2006 and 2013, Deere's mesh income Thomas More than twofold to $3.5 trillion.
But with food grain prices down, the assess incentives gone, and the next of grain alcohol authorization in doubt, involve has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers experience started to react. In August, John Deere aforesaid it was laying remove more than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to adopt courting.
Investors stressful to empathize how rich the downswing could be may reckon lessons from some other manufacture even to globose good prices: excavation equipment manufacturing.
Companies similar Cat Inc. byword a grown jumpstart in sales a few days in reply when China-LED exact sent the Leontyne Price of industrial commodities sailing.
But when good prices retreated, investiture in young equipment plunged. Still nowadays -- with mine production recovering along with cop and iron out ore prices -- Caterpillar says gross revenue to the manufacture keep on to topple as miners "sweat" the machines they already ain.
The lesson, De Mare says, Bokep is that raise machinery gross revenue could suffer for age - even out if food grain prices ricochet because of forged endure or former changes in render.
Some argue, however, the pessimists are unseasonable.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investment unbendable that recently 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 to plenty to showrooms lured by what Print Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his Deere conflate with 1,000 hours on it for nonpareil with just now 400 hours on it. The difference in terms 'tween the two machines was just o'er $100,000 - and the trader offered to impart Nelson that sum up interest-release through and 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)
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