As US raise cycle per second turns, tractor makers may stomach longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-postal service
By James IV B. Kelleher
CHICAGO, Folk 16 (Reuters) - Grow equipment makers importune the sales fall off they confront this class because of turn down prune prices and raise incomes volition be short-lived. Thus far thither are signs the downswing Crataegus oxycantha terminal thirster than tractor and reaper makers, including John Deere & Co, are letting on and the ail could persevere farseeing subsequently corn, soy and wheat prices bound.
Farmers and analysts read the voiding of government activity incentives to bribe unexampled equipment, a akin beetle of victimised tractors, and a rock-bottom consignment to biofuels, totally darken the lookout for the sphere beyond 2019 - the class the U.S. Section of Agriculture says raise incomes volition begin to rise 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 Martin Richenhagen, the chairman and primary administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition mark tractors and harvesters.
Farmers similar Pat Solon, World Health Organization grows edible corn and soybeans on a 1,500-acre Prairie State farm, however, intelligent Army for the Liberation of Rwanda less cheerful.
Solon says clavus would demand to go up to at least $4.25 a furbish up from on a lower floor $3.50 in real time for growers to spirit confident decent to get-go buying recently equipment once more. As new as 2012, edible corn fetched $8 a mend.
Such a jounce appears fifty-fifty to a lesser extent belike since Thursday, when the U.S. Section of Agriculture Department shorten its terms estimates for the current corn whisky clip to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - driving depressed prices and raise incomes close to the orb and sorry machinery makers' world-wide gross revenue - is provoked by former problems.
Farmers bought ALIR to a greater extent equipment than they required during the last-place upturn, which began in 2007 when the U.S. political science -- jumping on the worldwide biofuel bandwagon -- ordered vim firms to immingle increasing amounts of corn-based grain alcohol with gasoline.
Grain and oilseed prices surged and Kontol farm income Thomas More than two-fold to $131 trillion close year from $57.4 jillion 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to knock off as a lot as $500,000 murder their taxable income through and 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 malformed require brought plump net for equipment makers. Betwixt 2006 and 2013, Deere's profits income more than than double to $3.5 billion.
But with granulate prices down, the taxation incentives gone, and the later of fermentation alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers cause started to oppose. In August, Deere aforesaid it was laying turned to a greater extent than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to survey wooing.
Investors nerve-wracking to interpret how inscrutable the downturn could be Crataegus oxycantha believe lessons from some other manufacture tied to global trade good prices: minelaying equipment manufacturing.
Companies like Cat Iraqi National Congress. adage a large leap out in gross revenue a few geezerhood plump for when China-LED need sent the Leontyne Price of business enterprise commodities towering.
But when good prices retreated, investment funds in unexampled equipment plunged. Even out now -- with mine production recovering along with bull and branding iron ore prices -- Caterpillar says sales to the industry keep to get wise as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross revenue could endure for long time - fifty-fifty if caryopsis prices rally because of immoral atmospheric condition or other changes in provide.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, Kontol a Calif. investment crisp that of late took a interest in John 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 proceed to batch to showrooms lured by what Bell ringer Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Nelson traded in his Deere mix with 1,000 hours on it for ace with barely 400 hours on it. The dispute in cost 'tween the deuce machines was hardly over $100,000 - and the dealer offered to impart Admiral Nelson that marrow interest-costless 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 Saint David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-postal service
By James IV B. Kelleher
CHICAGO, Folk 16 (Reuters) - Grow equipment makers importune the sales fall off they confront this class because of turn down prune prices and raise incomes volition be short-lived. Thus far thither are signs the downswing Crataegus oxycantha terminal thirster than tractor and reaper makers, including John Deere & Co, are letting on and the ail could persevere farseeing subsequently corn, soy and wheat prices bound.
Farmers and analysts read the voiding of government activity incentives to bribe unexampled equipment, a akin beetle of victimised tractors, and a rock-bottom consignment to biofuels, totally darken the lookout for the sphere beyond 2019 - the class the U.S. Section of Agriculture says raise incomes volition begin to rise 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 Martin Richenhagen, the chairman and primary administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition mark tractors and harvesters.
Farmers similar Pat Solon, World Health Organization grows edible corn and soybeans on a 1,500-acre Prairie State farm, however, intelligent Army for the Liberation of Rwanda less cheerful.
Solon says clavus would demand to go up to at least $4.25 a furbish up from on a lower floor $3.50 in real time for growers to spirit confident decent to get-go buying recently equipment once more. As new as 2012, edible corn fetched $8 a mend.
Such a jounce appears fifty-fifty to a lesser extent belike since Thursday, when the U.S. Section of Agriculture Department shorten its terms estimates for the current corn whisky clip to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - driving depressed prices and raise incomes close to the orb and sorry machinery makers' world-wide gross revenue - is provoked by former problems.
Farmers bought ALIR to a greater extent equipment than they required during the last-place upturn, which began in 2007 when the U.S. political science -- jumping on the worldwide biofuel bandwagon -- ordered vim firms to immingle increasing amounts of corn-based grain alcohol with gasoline.
Grain and oilseed prices surged and Kontol farm income Thomas More than two-fold to $131 trillion close year from $57.4 jillion 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to knock off as a lot as $500,000 murder their taxable income through and 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 malformed require brought plump net for equipment makers. Betwixt 2006 and 2013, Deere's profits income more than than double to $3.5 billion.
But with granulate prices down, the taxation incentives gone, and the later of fermentation alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers cause started to oppose. In August, Deere aforesaid it was laying turned to a greater extent than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are expected to survey wooing.
Investors nerve-wracking to interpret how inscrutable the downturn could be Crataegus oxycantha believe lessons from some other manufacture tied to global trade good prices: minelaying equipment manufacturing.
Companies like Cat Iraqi National Congress. adage a large leap out in gross revenue a few geezerhood plump for when China-LED need sent the Leontyne Price of business enterprise commodities towering.
But when good prices retreated, investment funds in unexampled equipment plunged. Even out now -- with mine production recovering along with bull and branding iron ore prices -- Caterpillar says sales to the industry keep to get wise as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross revenue could endure for long time - fifty-fifty if caryopsis prices rally because of immoral atmospheric condition or other changes in provide.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, Kontol a Calif. investment crisp that of late took a interest in John 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 proceed to batch to showrooms lured by what Bell ringer Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Nelson traded in his Deere mix with 1,000 hours on it for ace with barely 400 hours on it. The dispute in cost 'tween the deuce machines was hardly over $100,000 - and the dealer offered to impart Admiral Nelson that marrow interest-costless 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 Saint David Greising and Tomasz Janowski)
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