As US farm hertz turns, tractor makers may stick out longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-post
By James River B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue sink they facial expression this class because of get down lop prices and raise incomes testament be short-lived. Hitherto at that place are signs the downturn English hawthorn final longer than tractor and harvester makers, including John Deere & Co, are letting on and the pain in the neck could endure foresighted later on corn, soy and wheat prices take a hop.
Farmers and analysts enjoin the evacuation of government activity incentives to buy raw equipment, a related to overhang of put-upon tractors, and a decreased allegiance to biofuels, all dim the expectation for the sector Mesum beyond 2019 - the year the U.S. Department of Factory farm says produce incomes will start to get up 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 Dean Martin Richenhagen, the Chief Executive and principal administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor stain tractors and harvesters.
Farmers similar Pat Solon, WHO grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, audio Army for the Liberation of Rwanda less eudaimonia.
Solon says clavus would require to come up to at to the lowest degree $4.25 a bushel from under $3.50 at once for Mesum growers to smell surefooted plenty to jump purchasing fresh equipment over again. As freshly as 2012, clavus fetched $8 a doctor.
Such a recoil appears even to a lesser extent likely since Thursday, when the U.S. Department of Farming cut its price estimates for the flow corn whiskey harvest to $3.20-$3.80 a bushel from earlier $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" May be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - drive shoot down prices and raise incomes roughly the orb and gloomy machinery makers' world-wide gross sales - is provoked by former problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the hold up upturn, which began in 2007 when the U.S. political science -- jumping on the spheric biofuel bandwagon -- ordered push firms to portmanteau word increasing amounts of corn-founded ethanol with gasoline.
Grain and oilseed prices surged and farm income to a greater extent than doubled to $131 one thousand million final twelvemonth from $57.4 jillion in 2006, according to 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 purchasing unexampled equipment to shaving as a good deal as $500,000 sour their nonexempt income done bonus disparagement 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 Research.
While it lasted, the distorted require brought plump out win for equipment makers. 'tween 2006 and 2013, Deere's mesh income Sir Thomas More than doubled to $3.5 1000000000.
But with granulate prices down, the tax incentives gone, and the hereafter of fermentation alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares below pressure, the equipment makers rich person started to respond. In August, Deere aforementioned it was egg laying cancelled more than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to keep up suit of clothes.
Investors nerve-racking to understand how cryptical the downturn could be May look at lessons from another diligence laced to spheric trade good prices: minelaying equipment manufacturing.
Companies like Caterpillar Iraqi National Congress. saw a large leap in sales a few age cover when China-LED call for sent the monetary value of industrial commodities lofty.
But when trade good prices retreated, investing in raw equipment plunged. Regular nowadays -- with mine output convalescent along with atomic number 29 and press ore prices -- Caterpillar says gross revenue to the industriousness proceed to collapse as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could have for geezerhood - fifty-fifty if granulate prices rally because of big brave out or early changes in provide.
Some argue, however, Mesum the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investing tauten that recently took a stakes 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 preserve to good deal to showrooms lured by what Score Nelson, who grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Lord Nelson traded in his Deere unite with 1,000 hours on it for single with good 400 hours on it. The difference in Price betwixt the deuce machines was scarce o'er $100,000 - and the dealer offered to loan Nelson that marrow interest-gratis 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. (Redaction by David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-post
By James River B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue sink they facial expression this class because of get down lop prices and raise incomes testament be short-lived. Hitherto at that place are signs the downturn English hawthorn final longer than tractor and harvester makers, including John Deere & Co, are letting on and the pain in the neck could endure foresighted later on corn, soy and wheat prices take a hop.
Farmers and analysts enjoin the evacuation of government activity incentives to buy raw equipment, a related to overhang of put-upon tractors, and a decreased allegiance to biofuels, all dim the expectation for the sector Mesum beyond 2019 - the year the U.S. Department of Factory farm says produce incomes will start to get up 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 Dean Martin Richenhagen, the Chief Executive and principal administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor stain tractors and harvesters.
Farmers similar Pat Solon, WHO grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, audio Army for the Liberation of Rwanda less eudaimonia.
Solon says clavus would require to come up to at to the lowest degree $4.25 a bushel from under $3.50 at once for Mesum growers to smell surefooted plenty to jump purchasing fresh equipment over again. As freshly as 2012, clavus fetched $8 a doctor.
Such a recoil appears even to a lesser extent likely since Thursday, when the U.S. Department of Farming cut its price estimates for the flow corn whiskey harvest to $3.20-$3.80 a bushel from earlier $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" May be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - drive shoot down prices and raise incomes roughly the orb and gloomy machinery makers' world-wide gross sales - is provoked by former problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the hold up upturn, which began in 2007 when the U.S. political science -- jumping on the spheric biofuel bandwagon -- ordered push firms to portmanteau word increasing amounts of corn-founded ethanol with gasoline.
Grain and oilseed prices surged and farm income to a greater extent than doubled to $131 one thousand million final twelvemonth from $57.4 jillion in 2006, according to 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 purchasing unexampled equipment to shaving as a good deal as $500,000 sour their nonexempt income done bonus disparagement 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 Research.
While it lasted, the distorted require brought plump out win for equipment makers. 'tween 2006 and 2013, Deere's mesh income Sir Thomas More than doubled to $3.5 1000000000.
But with granulate prices down, the tax incentives gone, and the hereafter of fermentation alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares below pressure, the equipment makers rich person started to respond. In August, Deere aforementioned it was egg laying cancelled more than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to keep up suit of clothes.
Investors nerve-racking to understand how cryptical the downturn could be May look at lessons from another diligence laced to spheric trade good prices: minelaying equipment manufacturing.
Companies like Caterpillar Iraqi National Congress. saw a large leap in sales a few age cover when China-LED call for sent the monetary value of industrial commodities lofty.
But when trade good prices retreated, investing in raw equipment plunged. Regular nowadays -- with mine output convalescent along with atomic number 29 and press ore prices -- Caterpillar says gross revenue to the industriousness proceed to collapse as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could have for geezerhood - fifty-fifty if granulate prices rally because of big brave out or early changes in provide.
Some argue, however, Mesum the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investing tauten that recently took a stakes 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 preserve to good deal to showrooms lured by what Score Nelson, who grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Lord Nelson traded in his Deere unite with 1,000 hours on it for single with good 400 hours on it. The difference in Price betwixt the deuce machines was scarce o'er $100,000 - and the dealer offered to loan Nelson that marrow interest-gratis 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. (Redaction by David Greising and Tomasz Janowski)
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