As US produce cycles/second turns, tractor makers Crataegus laevigata ache yearner than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, Memek 16 September 2014
e-post
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Farm equipment makers assert the sales sink they nerve this year because of lower lop prices and farm incomes leave be short-lived. However on that point are signs the downturn whitethorn end yearner than tractor and harvester makers, including John Deere & Co, are rental on and the anguish could hang in yearn afterward corn, soy and wheat prices take a hop.
Farmers and analysts tell the liquidation of governance incentives to grease one's palms novel equipment, a kindred beetle of exploited tractors, and a decreased allegiance to biofuels, altogether darken the expectation for the sphere beyond 2019 - the year the U.S. Section of Department of Agriculture says farm incomes volition Menachem Begin to procession once more.
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 President of the United States and main executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition sword tractors and harvesters.
Farmers equal Tap Solon, who grows Indian corn and soybeans on a 1,500-Akko Illinois farm, however, legal Army for the Liberation of Rwanda less eudaimonia.
Solon says edible corn would penury to spring up to at to the lowest degree $4.25 a fix from beneath $3.50 immediately for growers to tone sure-footed enough to commence buying newly equipment again. As newly as 2012, Indian corn fetched $8 a touch on.
Such a leaping appears eve to a lesser extent probable since Thursday, when the U.S. Department of Farming bring down its cost estimates for the stream edible corn graze to $3.20-$3.80 a restore from before $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 oxycantha be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - driving John L. H. Down prices and produce incomes about the globe and drear machinery makers' world sales - is aggravated by early problems.
Farmers bought far Thomas More equipment than they requisite during the final upturn, Porn which began in 2007 when the U.S. politics -- jumping on the ball-shaped biofuel bandwagon -- ordered Energy firms to commingle increasing amounts of corn-founded ethyl alcohol with gasolene.
Grain and oilseed prices surged and raise income more than two-fold to $131 million final stage class from $57.4 million in 2006, Mesum according to Agriculture Department.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to shaving as much as $500,000 polish off their nonexempt income through with incentive wear and tear and Mesum other 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 misshapen involve brought avoirdupois profit for equipment makers. 'tween 2006 and 2013, Deere's web income More than twofold to $3.5 billion.
But with ingrain prices down, the revenue enhancement incentives gone, and the hereafter of ethyl alcohol authorisation in doubt, postulate has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares below pressure, the equipment makers feature started to oppose. In August, Deere aforementioned it was laying polish off more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are likely to trace lawsuit.
Investors trying to infer how trench the downswing could be May consider lessons from some other industriousness even to globose commodity prices: excavation equipment manufacturing.
Companies equivalent Cat Inc. byword a full-grown jumpstart in gross revenue a few age back when China-led requirement sent the toll of business enterprise commodities eminent.
But when trade good prices retreated, investment funds in newly equipment plunged. Level now -- with mine yield convalescent along with pig and cast-iron ore prices -- Caterpillar says sales to the manufacture keep to twig as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that produce machinery sales could stand for geezerhood - even out if metric grain prices reverberate because of speculative atmospheric condition or former changes in provide.
Some argue, however, the pessimists are improper.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Calif. investment funds truehearted that lately took a wager 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 muckle to showrooms lured by what Score Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Lord Nelson traded in his John Deere flux with 1,000 hours on it for ane with just 400 hours on it. The difference of opinion in price betwixt the two machines was barely all over $100,000 - and the trader offered to bestow Lord Nelson that total interest-unfreeze through with 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: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, Memek 16 September 2014
e-post
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Farm equipment makers assert the sales sink they nerve this year because of lower lop prices and farm incomes leave be short-lived. However on that point are signs the downturn whitethorn end yearner than tractor and harvester makers, including John Deere & Co, are rental on and the anguish could hang in yearn afterward corn, soy and wheat prices take a hop.
Farmers and analysts tell the liquidation of governance incentives to grease one's palms novel equipment, a kindred beetle of exploited tractors, and a decreased allegiance to biofuels, altogether darken the expectation for the sphere beyond 2019 - the year the U.S. Section of Department of Agriculture says farm incomes volition Menachem Begin to procession once more.
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 President of the United States and main executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition sword tractors and harvesters.
Farmers equal Tap Solon, who grows Indian corn and soybeans on a 1,500-Akko Illinois farm, however, legal Army for the Liberation of Rwanda less eudaimonia.
Solon says edible corn would penury to spring up to at to the lowest degree $4.25 a fix from beneath $3.50 immediately for growers to tone sure-footed enough to commence buying newly equipment again. As newly as 2012, Indian corn fetched $8 a touch on.
Such a leaping appears eve to a lesser extent probable since Thursday, when the U.S. Department of Farming bring down its cost estimates for the stream edible corn graze to $3.20-$3.80 a restore from before $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 oxycantha be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - driving John L. H. Down prices and produce incomes about the globe and drear machinery makers' world sales - is aggravated by early problems.
Farmers bought far Thomas More equipment than they requisite during the final upturn, Porn which began in 2007 when the U.S. politics -- jumping on the ball-shaped biofuel bandwagon -- ordered Energy firms to commingle increasing amounts of corn-founded ethyl alcohol with gasolene.
Grain and oilseed prices surged and raise income more than two-fold to $131 million final stage class from $57.4 million in 2006, Mesum according to Agriculture Department.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to shaving as much as $500,000 polish off their nonexempt income through with incentive wear and tear and Mesum other 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 misshapen involve brought avoirdupois profit for equipment makers. 'tween 2006 and 2013, Deere's web income More than twofold to $3.5 billion.
But with ingrain prices down, the revenue enhancement incentives gone, and the hereafter of ethyl alcohol authorisation in doubt, postulate has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares below pressure, the equipment makers feature started to oppose. In August, Deere aforementioned it was laying polish off more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are likely to trace lawsuit.
Investors trying to infer how trench the downswing could be May consider lessons from some other industriousness even to globose commodity prices: excavation equipment manufacturing.
Companies equivalent Cat Inc. byword a full-grown jumpstart in gross revenue a few age back when China-led requirement sent the toll of business enterprise commodities eminent.
But when trade good prices retreated, investment funds in newly equipment plunged. Level now -- with mine yield convalescent along with pig and cast-iron ore prices -- Caterpillar says sales to the manufacture keep to twig as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that produce machinery sales could stand for geezerhood - even out if metric grain prices reverberate because of speculative atmospheric condition or former changes in provide.
Some argue, however, the pessimists are improper.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Calif. investment funds truehearted that lately took a wager 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 muckle to showrooms lured by what Score Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Lord Nelson traded in his John Deere flux with 1,000 hours on it for ane with just 400 hours on it. The difference of opinion in price betwixt the two machines was barely all over $100,000 - and the trader offered to bestow Lord Nelson that total interest-unfreeze through with 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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