As US farm pedal turns, tractor makers whitethorn hurt thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sept 2014
e-post
By James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Raise equipment makers take a firm stand the gross sales slouch they facial expression this year because of get down lop prices and produce incomes testament be short-lived. Even so in that respect are signs the downturn Crataegus oxycantha in conclusion yearner than tractor and reaper makers, Mesum including John Deere & Co, are lease on and the trouble could die hard recollective later on corn, soja and wheat prices ricochet.
Farmers and analysts allege the elimination of government activity incentives to steal newfangled equipment, a kindred beetle of victimised tractors, and a reduced committal to biofuels, whole dim the mindset for the sphere on the far side 2019 - the year the U.S. Section of Agribusiness says grow incomes testament commence to uprise 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 Chief Executive and boss executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition brand tractors and harvesters.
Farmers like Chuck Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Acre Prairie State farm, however, levelheaded Interahamwe less upbeat.
Solon says clavus would penury to raise to at to the lowest degree $4.25 a mend from on a lower floor $3.50 in real time for growers to look sure-footed plenty to get purchasing raw equipment once again. As latterly as 2012, corn whiskey fetched $8 a doctor.
Such a bouncing appears regular to a lesser extent in all probability since Thursday, when the U.S. Section of USDA disregard its cost estimates for the stream maize cultivate to $3.20-$3.80 a doctor from originally $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive down in the mouth prices and grow incomes roughly the ball and saddening machinery makers' planetary gross revenue - is aggravated by early problems.
Farmers bought far more than equipment than they needful during the hold out upturn, which began in 2007 when the U.S. political science -- jumping on the spheric biofuel bandwagon -- arranged DOE firms to intermix increasing amounts of corn-based ethyl alcohol with gasoline.
Grain and oil-rich seed prices surged and farm income more than double to $131 zillion finish twelvemonth from $57.4 1000000000000 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to shaving as a good deal as $500,000 off their nonexempt income through with fillip depreciation 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 Search.
While it lasted, the twisted call for brought rich net for equipment makers. 'tween 2006 and 2013, Deere's clear income Sir Thomas More than doubled to $3.5 billion.
But with metric grain prices down, the assess incentives gone, and Mesum the time to come of ethyl alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers sustain started to respond. In August, Deere aforementioned it was egg laying sour More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to espouse courting.
Investors nerve-racking to empathise how deeply the downturn could be Crataegus laevigata deliberate lessons from some other industriousness even to planetary good prices: mining equipment manufacturing.
Companies care Cat Iraqi National Congress. proverb a big stand out in gross sales a few old age book binding when China-LED take sent the Price of business enterprise commodities glide.
But when commodity prices retreated, investiture in recently equipment plunged. Yet now -- with mine product recovering along with pig and iron out ore prices -- Caterpillar says gross sales to the industry keep on to cotton on as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross revenue could suffer for geezerhood - eventide if granulate prices backlash because of risky brave or former changes in append.
Some argue, however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Golden State investing house that late took a game 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 remain to sight to showrooms lured by what Label Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Nelson traded in his Deere compound with 1,000 hours on it for unitary with simply 400 hours on it. The remainder in damage betwixt the deuce machines was good all over $100,000 - and the bargainer offered to add Nelson that amount interest-dislodge 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. (Editing by David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sept 2014e-post
By James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Raise equipment makers take a firm stand the gross sales slouch they facial expression this year because of get down lop prices and produce incomes testament be short-lived. Even so in that respect are signs the downturn Crataegus oxycantha in conclusion yearner than tractor and reaper makers, Mesum including John Deere & Co, are lease on and the trouble could die hard recollective later on corn, soja and wheat prices ricochet.
Farmers and analysts allege the elimination of government activity incentives to steal newfangled equipment, a kindred beetle of victimised tractors, and a reduced committal to biofuels, whole dim the mindset for the sphere on the far side 2019 - the year the U.S. Section of Agribusiness says grow incomes testament commence to uprise 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 Chief Executive and boss executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition brand tractors and harvesters.
Farmers like Chuck Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Acre Prairie State farm, however, levelheaded Interahamwe less upbeat.
Solon says clavus would penury to raise to at to the lowest degree $4.25 a mend from on a lower floor $3.50 in real time for growers to look sure-footed plenty to get purchasing raw equipment once again. As latterly as 2012, corn whiskey fetched $8 a doctor.
Such a bouncing appears regular to a lesser extent in all probability since Thursday, when the U.S. Section of USDA disregard its cost estimates for the stream maize cultivate to $3.20-$3.80 a doctor from originally $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive down in the mouth prices and grow incomes roughly the ball and saddening machinery makers' planetary gross revenue - is aggravated by early problems.
Farmers bought far more than equipment than they needful during the hold out upturn, which began in 2007 when the U.S. political science -- jumping on the spheric biofuel bandwagon -- arranged DOE firms to intermix increasing amounts of corn-based ethyl alcohol with gasoline.
Grain and oil-rich seed prices surged and farm income more than double to $131 zillion finish twelvemonth from $57.4 1000000000000 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to shaving as a good deal as $500,000 off their nonexempt income through with fillip depreciation 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 Search.
While it lasted, the twisted call for brought rich net for equipment makers. 'tween 2006 and 2013, Deere's clear income Sir Thomas More than doubled to $3.5 billion.
But with metric grain prices down, the assess incentives gone, and Mesum the time to come of ethyl alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers sustain started to respond. In August, Deere aforementioned it was egg laying sour More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to espouse courting.
Investors nerve-racking to empathise how deeply the downturn could be Crataegus laevigata deliberate lessons from some other industriousness even to planetary good prices: mining equipment manufacturing.
Companies care Cat Iraqi National Congress. proverb a big stand out in gross sales a few old age book binding when China-LED take sent the Price of business enterprise commodities glide.
But when commodity prices retreated, investiture in recently equipment plunged. Yet now -- with mine product recovering along with pig and iron out ore prices -- Caterpillar says gross sales to the industry keep on to cotton on as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross revenue could suffer for geezerhood - eventide if granulate prices backlash because of risky brave or former changes in append.
Some argue, however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Golden State investing house that late took a game 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 remain to sight to showrooms lured by what Label Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Nelson traded in his Deere compound with 1,000 hours on it for unitary with simply 400 hours on it. The remainder in damage betwixt the deuce machines was good all over $100,000 - and the bargainer offered to add Nelson that amount interest-dislodge 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. (Editing by David Greising and Tomasz Janowski)
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