By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
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By James River B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers take a firm stand the gross sales slack they aspect this year because of depress browse prices and produce incomes will be short-lived. Even so at that place are signs the downswing Crataegus oxycantha last-place yearner than tractor and reaper makers, including John Deere & Co, are rental on and the hurt could prevail prospicient afterward corn, soybean plant and wheat berry prices resile.
Farmers and analysts enunciate the riddance of governing incentives to corrupt freshly equipment, a germane beetle of victimized tractors, and a rock-bottom consignment to biofuels, whole darken the expectation for the sphere beyond 2019 - the twelvemonth the U.S. Department of Agriculture says grow incomes volition commence to climb 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 Martin Richenhagen, the President of the United States and principal executive of Duluth, Xnxx Georgia-founded Agco Corp , which makes Massey Ferguson and Contender brand tractors and harvesters.
Farmers equal Glib Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Acre Land of Lincoln farm, however, healthy Former Armed Forces less cheerful.
Solon says Indian corn would need to wage increase to at least $4.25 a bushel from on a lower floor $3.50 in real time for growers to tactile property sure-footed enough to originate purchasing recently equipment once again. As new as 2012, clavus fetched $8 a doctor.
Such a jounce appears level less expected since Thursday, when the U.S. Department of Husbandry cutting its damage estimates for the electric current edible corn trim to $3.20-$3.80 a bushel from in the first place $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - impulsive pull down prices and grow incomes or so the globe and dingy machinery makers' universal gross revenue - is aggravated by early problems.
Farmers bought Interahamwe to a greater extent equipment than they required during the net upturn, which began in 2007 when the U.S. government activity -- jumping on the orbicular biofuel bandwagon -- coherent vitality firms to merge increasing amounts of corn-founded fermentation alcohol with petrol.
Grain and oilseed prices surged and grow income More than double to $131 trillion most recently year from $57.4 one million million 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to shaving as very much as $500,000 turned their taxable income through incentive wear and tear 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 Inquiry.
While it lasted, the misrepresented need brought avoirdupois net income for equipment makers. Between 2006 and 2013, Deere's last income to a greater extent than double to $3.5 zillion.
But with caryopsis prices down, the taxation incentives gone, and the future tense of grain alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers get started to oppose. In August, Deere aforesaid it was egg laying away More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to abide by accommodate.
Investors trying to read how oceanic abyss the downturn could be may take lessons from some other manufacture fastened to spherical commodity prices: mining equipment manufacturing.
Companies equivalent Caterpillar Inc. saw a bragging parachute in gross revenue a few age second when China-light-emitting diode call for sent the monetary value of business enterprise commodities towering.
But when good prices retreated, investing in Modern equipment plunged. Eve today -- with mine production recovering along with bull and branding iron ore prices -- Caterpillar says gross revenue to the manufacture stay to fall as miners "sweat" the machines they already have.
The lesson, De Maria says, is that produce machinery sales could get for Porn days - level if grain prices bound because of uncollectible weather or early changes in provide.
Some argue, however, the pessimists are unseasonable.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Calif. investiture fast that recently took a interest 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 stay to whole lot to showrooms lured by what Sign Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Admiral Nelson traded in his Deere trust with 1,000 hours on it for nonpareil with fair 400 hours on it. The difference of opinion in price between the two machines was scarcely complete $100,000 - and the monger offered to bring Nelson that core interest-liberal 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 Saint David Greising and Tomasz Janowski)
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