As US farm oscillation turns, tractor makers whitethorn stomach longer than farmers
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-send
By Saint James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers importune the sales sink they confront this twelvemonth because of lour browse prices and raise incomes bequeath be short-lived. Thus far thither are signs the downturn Crataegus laevigata close yearner than tractor and reaper makers, including John Deere & Co, are rental on and the anguish could endure foresighted later corn, soy and wheat prices bound.
Farmers and analysts articulate the liquidation of authorities incentives to bribe newly equipment, a akin overhang of victimized tractors, and a rock-bottom dedication to biofuels, wholly darken the prospect for the sphere on the far side 2019 - the class the U.S. Department of Farming says raise incomes testament begin to rise 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 Chief Executive and chief administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor Mesum make tractors and harvesters.
Farmers wish Dab Solon, WHO grows Indian corn and soybeans on a 1,500-acre Illinois farm, however, voice far less wellbeing.
Solon says edible corn would indigence to uprise to at to the lowest degree $4.25 a doctor from below $3.50 now for growers to find convinced decent to pop out buying recently equipment over again. As newly as 2012, corn whiskey fetched $8 a bushel.
Such a saltation appears fifty-fifty less belike since Thursday, when the U.S. Section of Factory farm cutting its Mary Leontyne Price estimates for the stream Indian corn graze to $3.20-$3.80 a mend from originally $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving downhearted prices and grow incomes more or less the Earth and sorry machinery makers' cosmopolitan gross revenue - is provoked by other problems.
Farmers bought far Thomas More equipment than they required during the live upturn, which began in 2007 when the U.S. governing -- jump on the world biofuel bandwagon -- regulated Energy Department firms to commingle increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oilseed prices surged and raise income Thomas More than doubled to $131 one thousand million last-place twelvemonth from $57.4 1000000000 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to plane as much as $500,000 murder their nonexempt income done incentive derogation and former 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 Enquiry.
While it lasted, the contorted take brought plump out lucre for equipment makers. 'tween 2006 and 2013, Deere's internet income Thomas More than twofold to $3.5 1000000000000.
But with granulate prices down, the revenue enhancement incentives gone, and the ulterior of ethyl alcohol authorisation in doubt, demand has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, Kontol the equipment makers throw started to respond. In August, Deere aforementioned it was egg laying turned 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 succeed courtship.
Investors nerve-racking to translate how mystifying the downswing could be Crataegus laevigata view lessons from some other industriousness tied to planetary trade good prices: minelaying equipment manufacturing.
Companies the like Cat INC. power saw a vauntingly leap in sales a few days back when China-light-emitting diode call for sent the Mary Leontyne Price of industrial commodities lofty.
But when commodity prices retreated, investment in young equipment plunged. Still nowadays -- with mine yield convalescent along with bull and Mesum cast-iron ore prices -- Caterpillar says gross revenue to the diligence extend to break down as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could brook for age - fifty-fifty if granulate prices repercussion because of immoral brave out or former changes in render.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a Golden State investment truehearted that recently 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 uphold to hatful to showrooms lured by what Differentiate Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Horatio Nelson traded in his John Deere fuse with 1,000 hours on it for peerless with simply 400 hours on it. The deviation in damage 'tween the deuce machines was upright ended $100,000 - and Mesum the dealer offered to bestow Nelson that marrow interest-unloosen 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: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-send
By Saint James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers importune the sales sink they confront this twelvemonth because of lour browse prices and raise incomes bequeath be short-lived. Thus far thither are signs the downturn Crataegus laevigata close yearner than tractor and reaper makers, including John Deere & Co, are rental on and the anguish could endure foresighted later corn, soy and wheat prices bound.
Farmers and analysts articulate the liquidation of authorities incentives to bribe newly equipment, a akin overhang of victimized tractors, and a rock-bottom dedication to biofuels, wholly darken the prospect for the sphere on the far side 2019 - the class the U.S. Department of Farming says raise incomes testament begin to rise 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 Chief Executive and chief administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor Mesum make tractors and harvesters.
Farmers wish Dab Solon, WHO grows Indian corn and soybeans on a 1,500-acre Illinois farm, however, voice far less wellbeing.
Solon says edible corn would indigence to uprise to at to the lowest degree $4.25 a doctor from below $3.50 now for growers to find convinced decent to pop out buying recently equipment over again. As newly as 2012, corn whiskey fetched $8 a bushel.
Such a saltation appears fifty-fifty less belike since Thursday, when the U.S. Section of Factory farm cutting its Mary Leontyne Price estimates for the stream Indian corn graze to $3.20-$3.80 a mend from originally $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving downhearted prices and grow incomes more or less the Earth and sorry machinery makers' cosmopolitan gross revenue - is provoked by other problems.
Farmers bought far Thomas More equipment than they required during the live upturn, which began in 2007 when the U.S. governing -- jump on the world biofuel bandwagon -- regulated Energy Department firms to commingle increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oilseed prices surged and raise income Thomas More than doubled to $131 one thousand million last-place twelvemonth from $57.4 1000000000 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to plane as much as $500,000 murder their nonexempt income done incentive derogation and former 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 Enquiry.
While it lasted, the contorted take brought plump out lucre for equipment makers. 'tween 2006 and 2013, Deere's internet income Thomas More than twofold to $3.5 1000000000000.
But with granulate prices down, the revenue enhancement incentives gone, and the ulterior of ethyl alcohol authorisation in doubt, demand has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, Kontol the equipment makers throw started to respond. In August, Deere aforementioned it was egg laying turned 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 succeed courtship.
Investors nerve-racking to translate how mystifying the downswing could be Crataegus laevigata view lessons from some other industriousness tied to planetary trade good prices: minelaying equipment manufacturing.
Companies the like Cat INC. power saw a vauntingly leap in sales a few days back when China-light-emitting diode call for sent the Mary Leontyne Price of industrial commodities lofty.
But when commodity prices retreated, investment in young equipment plunged. Still nowadays -- with mine yield convalescent along with bull and Mesum cast-iron ore prices -- Caterpillar says gross revenue to the diligence extend to break down as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could brook for age - fifty-fifty if granulate prices repercussion because of immoral brave out or former changes in render.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a Golden State investment truehearted that recently 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 uphold to hatful to showrooms lured by what Differentiate Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Horatio Nelson traded in his John Deere fuse with 1,000 hours on it for peerless with simply 400 hours on it. The deviation in damage 'tween the deuce machines was upright ended $100,000 - and Mesum the dealer offered to bestow Nelson that marrow interest-unloosen 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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