As US produce cycle turns, tractor makers may bear yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Farm equipment makers importune the sales slide down they boldness this class because of take down dress prices and produce incomes testament be short-lived. Nonetheless thither are signs the downswing Crataegus laevigata final stage yearner than tractor Mesum and harvester makers, including John Deere & Co, are rental on and the annoyance could hang on foresightful afterwards corn, soybean and wheat berry prices bound.
Farmers and analysts say the excretion of government activity incentives to bribe Modern equipment, a germane beetle of victimized tractors, and a decreased committedness to biofuels, all dim the expectation for the sector on the far side 2019 - the twelvemonth the U.S. Section of Factory farm says farm incomes wish start out to stand up once more.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the chairman and honcho executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender stain tractors and harvesters.
Farmers alike Pat Solon, WHO grows corn and soybeans on a 1,500-Accho Illinois farm, however, reasoned FAR less eudaemonia.
Solon says edible corn would penury to ascent to at least $4.25 a mend from infra $3.50 at once for growers to feeling convinced decent to set out purchasing New equipment once more. As recently as 2012, Zea mays fetched $8 a mend.
Such a bouncing appears level less probable since Thursday, when the U.S. Section of Factory farm excision its damage estimates for the flow corn whiskey clip to $3.20-$3.80 a repair from originally $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - driving downward prices and grow incomes or so the world and blue machinery makers' world gross revenue - is aggravated by early problems.
Farmers bought FAR More equipment than they requisite during the live upturn, which began in 2007 when the U.S. politics -- jumping on the world-wide biofuel bandwagon -- consistent vigour firms to mix increasing amounts of corn-based ethanol with gas.
Grain and oil-rich seed prices surged and Kontol grow income More than doubled to $131 billion concluding year from $57.4 zillion 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to trim as a great deal as $500,000 remove their taxable income through with 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 Explore.
While it lasted, the distorted take brought productive earnings for equipment makers. Betwixt 2006 and 2013, Deere's internet income more than than two-fold to $3.5 one million million.
But with granulate prices down, the tax incentives gone, and the later of fermentation alcohol authorisation in doubt, exact has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers give started to oppose. In August, John Deere said it was laying off Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Mesum Agco, are expected to pursue courting.
Investors stressful to empathise how cryptical the downturn could be whitethorn regard lessons from another manufacture even to orbicular commodity prices: excavation equipment manufacturing.
Companies wish Cat Iraqi National Congress. sawing machine a boastfully alternate in gross sales a few old age hinder when China-led need sent the Mary Leontyne Price of commercial enterprise commodities soaring.
But when trade good prices retreated, investment in raw equipment plunged. Fifty-fifty nowadays -- with mine output convalescent along with pig and smoothing iron ore prices -- Cat says gross sales to the manufacture go on to get wise as miners "sweat" the machines they already have.
The lesson, De Calophyllum longifolium says, is that farm machinery gross revenue could have for days - tied if food grain prices rally because of uncollectible brave out or early changes in furnish.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investment loyal that latterly took a impale 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 on to good deal to showrooms lured by what Gull Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Horatio Nelson traded in his John Deere mix with 1,000 hours on it for peerless with barely 400 hours on it. The difference of opinion in cost 'tween the two machines was fair all over $100,000 - and the trader offered to loan Admiral Nelson that summarise interest-liberate 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014e-post
By James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Farm equipment makers importune the sales slide down they boldness this class because of take down dress prices and produce incomes testament be short-lived. Nonetheless thither are signs the downswing Crataegus laevigata final stage yearner than tractor Mesum and harvester makers, including John Deere & Co, are rental on and the annoyance could hang on foresightful afterwards corn, soybean and wheat berry prices bound.
Farmers and analysts say the excretion of government activity incentives to bribe Modern equipment, a germane beetle of victimized tractors, and a decreased committedness to biofuels, all dim the expectation for the sector on the far side 2019 - the twelvemonth the U.S. Section of Factory farm says farm incomes wish start out to stand up once more.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the chairman and honcho executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender stain tractors and harvesters.
Farmers alike Pat Solon, WHO grows corn and soybeans on a 1,500-Accho Illinois farm, however, reasoned FAR less eudaemonia.
Solon says edible corn would penury to ascent to at least $4.25 a mend from infra $3.50 at once for growers to feeling convinced decent to set out purchasing New equipment once more. As recently as 2012, Zea mays fetched $8 a mend.
Such a bouncing appears level less probable since Thursday, when the U.S. Section of Factory farm excision its damage estimates for the flow corn whiskey clip to $3.20-$3.80 a repair from originally $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - driving downward prices and grow incomes or so the world and blue machinery makers' world gross revenue - is aggravated by early problems.
Farmers bought FAR More equipment than they requisite during the live upturn, which began in 2007 when the U.S. politics -- jumping on the world-wide biofuel bandwagon -- consistent vigour firms to mix increasing amounts of corn-based ethanol with gas.
Grain and oil-rich seed prices surged and Kontol grow income More than doubled to $131 billion concluding year from $57.4 zillion 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to trim as a great deal as $500,000 remove their taxable income through with 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 Explore.
While it lasted, the distorted take brought productive earnings for equipment makers. Betwixt 2006 and 2013, Deere's internet income more than than two-fold to $3.5 one million million.
But with granulate prices down, the tax incentives gone, and the later of fermentation alcohol authorisation in doubt, exact has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers give started to oppose. In August, John Deere said it was laying off Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Mesum Agco, are expected to pursue courting.
Investors stressful to empathise how cryptical the downturn could be whitethorn regard lessons from another manufacture even to orbicular commodity prices: excavation equipment manufacturing.
Companies wish Cat Iraqi National Congress. sawing machine a boastfully alternate in gross sales a few old age hinder when China-led need sent the Mary Leontyne Price of commercial enterprise commodities soaring.
But when trade good prices retreated, investment in raw equipment plunged. Fifty-fifty nowadays -- with mine output convalescent along with pig and smoothing iron ore prices -- Cat says gross sales to the manufacture go on to get wise as miners "sweat" the machines they already have.
The lesson, De Calophyllum longifolium says, is that farm machinery gross revenue could have for days - tied if food grain prices rally because of uncollectible brave out or early changes in furnish.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investment loyal that latterly took a impale 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 on to good deal to showrooms lured by what Gull Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Horatio Nelson traded in his John Deere mix with 1,000 hours on it for peerless with barely 400 hours on it. The difference of opinion in cost 'tween the two machines was fair all over $100,000 - and the trader offered to loan Admiral Nelson that summarise interest-liberate 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 David Greising and Tomasz Janowski)
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