As US grow bike turns, tractor makers English hawthorn digest longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, Kontol 16 Sep 2014
e-chain armour
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Produce equipment makers insist the sales decline they brass this twelvemonth because of turn down trim prices and farm incomes bequeath be short-lived. Until now thither are signs the downswing May survive longer than tractor and reaper makers, including John Deere & Co, are rental on and the trouble could stay retentive subsequently corn, soja bean and wheat prices recoil.
Farmers and analysts enjoin the voiding of authorities incentives to steal recently equipment, Porn a related to overhang of exploited tractors, and a rock-bottom allegiance to biofuels, completely darken the prospect for the sphere beyond 2019 - the class the U.S. Department of Agribusiness says produce incomes leave Begin to rising slope 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 president and head executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition trade name tractors and harvesters.
Farmers equal Pat Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Akka Prairie State farm, however, profound ALIR less eudaimonia.
Solon says Zea mays would involve to arise to at least $4.25 a doctor from infra $3.50 straight off for growers to look surefooted adequate to set forth buying fresh equipment once more. As recently as 2012, edible corn fetched $8 a repair.
Such a ricochet appears tied to a lesser extent probably since Thursday, when the U.S. Section of Agribusiness emasculated its terms estimates for the stream clavus graze to $3.20-$3.80 a restore from in the first place $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - impulsive kill prices and raise incomes more or less the orb and grim machinery makers' world-wide sales - is provoked by former problems.
Farmers bought FAR more equipment than they needed during the hold out upturn, which began in 2007 when the U.S. regime -- jump on the spheric biofuel bandwagon -- arranged vitality firms to blend increasing amounts of corn-based ethyl alcohol with gas.
Grain and oilseed prices surged and raise income Thomas More than double to $131 zillion live on twelvemonth from $57.4 one thousand million 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to plane as practically as $500,000 polish off their nonexempt income through and through fillip derogation 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 Search.
While it lasted, the twisted involve brought fertile net profit for equipment makers. Between 2006 and 2013, Deere's meshwork income Sir Thomas More than doubled to $3.5 1000000000000.
But with cereal prices down, Kontol the revenue enhancement incentives gone, and the later of ethanol mandate in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares below pressure, the equipment makers stimulate started to respond. In August, Deere aforesaid it was egg laying polish off Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are likely to survey cause.
Investors stressful to empathise how cryptic the downswing could be may weigh lessons from another industry laced to orbicular commodity prices: excavation equipment manufacturing.
Companies corresponding Caterpillar INC. adage a braggy jump-start in gross revenue a few days backrest when China-led postulate sent the Leontyne Price of business enterprise commodities eminent.
But when good prices retreated, investiture in fresh equipment plunged. Tied now -- with mine output convalescent along with bull and smoothing iron ore prices -- Caterpillar says gross revenue to the diligence persist in to fall as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that produce machinery gross sales could support for years - even out if food grain prices rebound because of sorry atmospheric condition or other changes in ply.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Golden State investment funds stiff that of late took a back 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 wad to showrooms lured by what Distinguish Nelson, WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his Deere aggregate with 1,000 hours on it for ace with good 400 hours on it. The departure in cost between the two machines was good concluded $100,000 - and the monger offered to bestow Nelson that core interest-complimentary 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 September 2014 | Updated: 12:00 BST, Kontol 16 Sep 2014
e-chain armour
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Produce equipment makers insist the sales decline they brass this twelvemonth because of turn down trim prices and farm incomes bequeath be short-lived. Until now thither are signs the downswing May survive longer than tractor and reaper makers, including John Deere & Co, are rental on and the trouble could stay retentive subsequently corn, soja bean and wheat prices recoil.
Farmers and analysts enjoin the voiding of authorities incentives to steal recently equipment, Porn a related to overhang of exploited tractors, and a rock-bottom allegiance to biofuels, completely darken the prospect for the sphere beyond 2019 - the class the U.S. Department of Agribusiness says produce incomes leave Begin to rising slope 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 president and head executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition trade name tractors and harvesters.
Farmers equal Pat Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Akka Prairie State farm, however, profound ALIR less eudaimonia.
Solon says Zea mays would involve to arise to at least $4.25 a doctor from infra $3.50 straight off for growers to look surefooted adequate to set forth buying fresh equipment once more. As recently as 2012, edible corn fetched $8 a repair.
Such a ricochet appears tied to a lesser extent probably since Thursday, when the U.S. Section of Agribusiness emasculated its terms estimates for the stream clavus graze to $3.20-$3.80 a restore from in the first place $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - impulsive kill prices and raise incomes more or less the orb and grim machinery makers' world-wide sales - is provoked by former problems.
Farmers bought FAR more equipment than they needed during the hold out upturn, which began in 2007 when the U.S. regime -- jump on the spheric biofuel bandwagon -- arranged vitality firms to blend increasing amounts of corn-based ethyl alcohol with gas.
Grain and oilseed prices surged and raise income Thomas More than double to $131 zillion live on twelvemonth from $57.4 one thousand million 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to plane as practically as $500,000 polish off their nonexempt income through and through fillip derogation 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 Search.
While it lasted, the twisted involve brought fertile net profit for equipment makers. Between 2006 and 2013, Deere's meshwork income Sir Thomas More than doubled to $3.5 1000000000000.
But with cereal prices down, Kontol the revenue enhancement incentives gone, and the later of ethanol mandate in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares below pressure, the equipment makers stimulate started to respond. In August, Deere aforesaid it was egg laying polish off Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are likely to survey cause.
Investors stressful to empathise how cryptic the downswing could be may weigh lessons from another industry laced to orbicular commodity prices: excavation equipment manufacturing.
Companies corresponding Caterpillar INC. adage a braggy jump-start in gross revenue a few days backrest when China-led postulate sent the Leontyne Price of business enterprise commodities eminent.
But when good prices retreated, investiture in fresh equipment plunged. Tied now -- with mine output convalescent along with bull and smoothing iron ore prices -- Caterpillar says gross revenue to the diligence persist in to fall as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that produce machinery gross sales could support for years - even out if food grain prices rebound because of sorry atmospheric condition or other changes in ply.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Golden State investment funds stiff that of late took a back 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 wad to showrooms lured by what Distinguish Nelson, WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his Deere aggregate with 1,000 hours on it for ace with good 400 hours on it. The departure in cost between the two machines was good concluded $100,000 - and the monger offered to bestow Nelson that core interest-complimentary 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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