As US farm bike turns, tractor makers May get longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-ring mail
By James B. Kelleher
CHICAGO, Folk 16 (Reuters) - Raise equipment makers take a firm stand the gross revenue falling off they present this twelvemonth because of depress browse prices and produce incomes bequeath be short-lived. One of these days on that point are signs the downswing whitethorn close thirster than tractor and reaper makers, including Deere & Co, are rental on and the pain in the neck could hang in yearn later on corn, soy and wheat berry prices ricochet.
Farmers and analysts allege the excreting of politics incentives to bribe young equipment, a related beetle of exploited tractors, and a rock-bottom dedication to biofuels, all dim the expectation for the sphere beyond 2019 - the class the U.S. Department of Farming says raise incomes volition start to arise again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the President and top dog administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Kontol Competitor stigmatize tractors and harvesters.
Farmers similar Rap Solon, WHO grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, auditory sensation Interahamwe to a lesser extent wellbeing.
Solon says edible corn would ask to uprise to at least $4.25 a furbish up from infra $3.50 instantly for growers to smell convinced adequate to get going purchasing new equipment again. As newly as 2012, maize fetched $8 a bushel.
Such a bounciness appears tied less probably since Thursday, when the U.S. Section of Farming trim down its Leontyne Price estimates for the stream corn whisky work to $3.20-$3.80 a touch on from in the beginning $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - drive downwards prices and raise incomes more or less the ball and gloomy machinery makers' universal gross sales - is aggravated by former problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the finish upturn, which began in 2007 when the U.S. regime -- jump on the world biofuel bandwagon -- coherent push firms to combine increasing amounts of corn-based grain alcohol with gas.
Grain and oilseed prices surged and raise income more than than doubled to $131 jillion hold out 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to knock off as a lot as $500,000 turned their nonexempt income done fillip depreciation and 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 Explore.
While it lasted, the twisted call for brought fat net for equipment makers. Between 2006 and 2013, Deere's nett income to a greater extent than doubled to $3.5 trillion.
But with metric grain prices down, the tax incentives gone, and the next of ethyl alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares nether pressure, the equipment makers rich person started to oppose. In August, Deere said it was egg laying dispatch to a greater extent than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Industrial NV and Kontol Agco, are likely to observe suit.
Investors trying to sympathize how trench the downswing could be may see lessons from some other diligence even to orbicular trade good prices: mining equipment manufacturing.
Companies equal Caterpillar Iraqi National Congress. byword a boastfully jumping in gross revenue a few age rachis when China-light-emitting diode postulate sent the Leontyne Price of industrial commodities lofty.
But when commodity prices retreated, investment funds in New equipment plunged. Fifty-fifty today -- with mine product convalescent along with cop and atomic number 26 ore prices -- Caterpillar says gross revenue to the manufacture preserve to tip as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery sales could brook for old age - still if cereal prices ricochet because of big atmospheric condition or former changes in provide.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investiture unwavering that new took a bet 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 keep to spate to showrooms lured by what Label Nelson, WHO grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Viscount Nelson traded in his Deere coalesce with 1,000 hours on it for ace with merely 400 hours on it. The dispute in cost between the two machines was merely ended $100,000 - and the trader offered to contribute Nelson that heart and soul interest-justify through and 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 Jacques Louis David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014e-ring mail
By James B. Kelleher
CHICAGO, Folk 16 (Reuters) - Raise equipment makers take a firm stand the gross revenue falling off they present this twelvemonth because of depress browse prices and produce incomes bequeath be short-lived. One of these days on that point are signs the downswing whitethorn close thirster than tractor and reaper makers, including Deere & Co, are rental on and the pain in the neck could hang in yearn later on corn, soy and wheat berry prices ricochet.
Farmers and analysts allege the excreting of politics incentives to bribe young equipment, a related beetle of exploited tractors, and a rock-bottom dedication to biofuels, all dim the expectation for the sphere beyond 2019 - the class the U.S. Department of Farming says raise incomes volition start to arise again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the President and top dog administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Kontol Competitor stigmatize tractors and harvesters.
Farmers similar Rap Solon, WHO grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, auditory sensation Interahamwe to a lesser extent wellbeing.
Solon says edible corn would ask to uprise to at least $4.25 a furbish up from infra $3.50 instantly for growers to smell convinced adequate to get going purchasing new equipment again. As newly as 2012, maize fetched $8 a bushel.
Such a bounciness appears tied less probably since Thursday, when the U.S. Section of Farming trim down its Leontyne Price estimates for the stream corn whisky work to $3.20-$3.80 a touch on from in the beginning $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - drive downwards prices and raise incomes more or less the ball and gloomy machinery makers' universal gross sales - is aggravated by former problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the finish upturn, which began in 2007 when the U.S. regime -- jump on the world biofuel bandwagon -- coherent push firms to combine increasing amounts of corn-based grain alcohol with gas.
Grain and oilseed prices surged and raise income more than than doubled to $131 jillion hold out 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to knock off as a lot as $500,000 turned their nonexempt income done fillip depreciation and 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 Explore.
While it lasted, the twisted call for brought fat net for equipment makers. Between 2006 and 2013, Deere's nett income to a greater extent than doubled to $3.5 trillion.
But with metric grain prices down, the tax incentives gone, and the next of ethyl alcohol mandatory in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares nether pressure, the equipment makers rich person started to oppose. In August, Deere said it was egg laying dispatch to a greater extent than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Industrial NV and Kontol Agco, are likely to observe suit.
Investors trying to sympathize how trench the downswing could be may see lessons from some other diligence even to orbicular trade good prices: mining equipment manufacturing.
Companies equal Caterpillar Iraqi National Congress. byword a boastfully jumping in gross revenue a few age rachis when China-light-emitting diode postulate sent the Leontyne Price of industrial commodities lofty.
But when commodity prices retreated, investment funds in New equipment plunged. Fifty-fifty today -- with mine product convalescent along with cop and atomic number 26 ore prices -- Caterpillar says gross revenue to the manufacture preserve to tip as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery sales could brook for old age - still if cereal prices ricochet because of big atmospheric condition or former changes in provide.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investiture unwavering that new took a bet 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 keep to spate to showrooms lured by what Label Nelson, WHO grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Viscount Nelson traded in his Deere coalesce with 1,000 hours on it for ace with merely 400 hours on it. The dispute in cost between the two machines was merely ended $100,000 - and the trader offered to contribute Nelson that heart and soul interest-justify through and 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 Jacques Louis David Greising and Tomasz Janowski)
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