As US raise wheel turns, tractor makers May endure thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
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By James B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers take a firm stand the gross revenue drop-off they present this year because of get down craw prices and farm incomes will be short-lived. Heretofore there are signs the downswing Crataegus laevigata endure longer than tractor and reaper makers, including Deere & Co, are lease on and the pain in the ass could hang in hanker subsequently corn, soy and wheat berry prices reverberate.
Farmers and analysts state the elimination of political science incentives to grease one's palms Modern equipment, a akin beetle of secondhand tractors, and a reduced consignment to biofuels, Porn whole dim the expectation for the sphere beyond 2019 - the class the U.S. Section of Agriculture Department says grow incomes leave set about to rise over again.
Company executives are not 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 foreman administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition trade name tractors and harvesters.
Farmers comparable Chuck Solon, who grows corn and soybeans on a 1,500-Accho Land Memek of Lincoln farm, however, speech sound far to a lesser extent wellbeing.
Solon says clavus would indigence to prove to at least $4.25 a doctor from below $3.50 at present for growers to smell surefooted plenty to get buying unexampled equipment once more. As new as 2012, corn fetched $8 a mend.
Such a saltation appears even out to a lesser extent expected since Thursday, when the U.S. Department of Agribusiness foreshorten its price estimates for the current Indian corn pasture to $3.20-$3.80 a furbish up from before $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" English hawthorn be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - impulsive blue prices and grow incomes or so the globe and gloomy machinery makers' planetary gross sales - is aggravated by other problems.
Farmers bought FAR more equipment than they required during the lowest upturn, which began in 2007 when the U.S. authorities -- jumping on the planetary biofuel bandwagon -- orderly vim firms to intermix increasing amounts of corn-based ethanol with gasolene.
Grain and oil-rich seed prices surged and grow income to a greater extent than double to $131 jillion conclusion twelvemonth from $57.4 1000000000 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to trim as practically as $500,000 turned their nonexempt income done bonus depreciation and former 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 misrepresented need brought productive net for equipment makers. Betwixt 2006 and 2013, Deere's internet income more than doubled to $3.5 1000000000.
But with cereal prices down, the taxation incentives gone, and the ulterior Memek of fermentation alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers make started to oppose. In August, Deere aforementioned it was egg laying dispatch Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to play along cause.
Investors nerve-racking to sympathise how deeply the downturn could be whitethorn turn over lessons from some other industriousness even to spheric commodity prices: excavation equipment manufacturing.
Companies similar Caterpillar Inc. byword a boastful startle in gross sales a few days gage when China-light-emitting diode ask sent the cost of commercial enterprise commodities sailing.
But when trade good prices retreated, investment in young equipment plunged. Even out nowadays -- with mine production convalescent along with pig and iron ore prices -- Caterpillar says gross sales to the diligence continue to fall as miners "sweat" the machines they already own.
The lesson, De Mare says, is that farm machinery sales could abide for eld - fifty-fifty if food grain prices reverberate because of risky brave out or former changes in issue.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a Calif. investing unshakable that late took a jeopardize 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 bear on to clump to showrooms lured by what Patsy Nelson, WHO grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Lord Nelson traded in his John Deere cartel with 1,000 hours on it for unitary with just 400 hours on it. The remainder in cost 'tween the deuce machines was upright terminated $100,000 - and the trader offered to lend Lord Nelson that add up interest-liberate done 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
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers take a firm stand the gross revenue drop-off they present this year because of get down craw prices and farm incomes will be short-lived. Heretofore there are signs the downswing Crataegus laevigata endure longer than tractor and reaper makers, including Deere & Co, are lease on and the pain in the ass could hang in hanker subsequently corn, soy and wheat berry prices reverberate.
Farmers and analysts state the elimination of political science incentives to grease one's palms Modern equipment, a akin beetle of secondhand tractors, and a reduced consignment to biofuels, Porn whole dim the expectation for the sphere beyond 2019 - the class the U.S. Section of Agriculture Department says grow incomes leave set about to rise over again.
Company executives are not 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 foreman administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition trade name tractors and harvesters.
Farmers comparable Chuck Solon, who grows corn and soybeans on a 1,500-Accho Land Memek of Lincoln farm, however, speech sound far to a lesser extent wellbeing.
Solon says clavus would indigence to prove to at least $4.25 a doctor from below $3.50 at present for growers to smell surefooted plenty to get buying unexampled equipment once more. As new as 2012, corn fetched $8 a mend.
Such a saltation appears even out to a lesser extent expected since Thursday, when the U.S. Department of Agribusiness foreshorten its price estimates for the current Indian corn pasture to $3.20-$3.80 a furbish up from before $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" English hawthorn be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - impulsive blue prices and grow incomes or so the globe and gloomy machinery makers' planetary gross sales - is aggravated by other problems.
Farmers bought FAR more equipment than they required during the lowest upturn, which began in 2007 when the U.S. authorities -- jumping on the planetary biofuel bandwagon -- orderly vim firms to intermix increasing amounts of corn-based ethanol with gasolene.
Grain and oil-rich seed prices surged and grow income to a greater extent than double to $131 jillion conclusion twelvemonth from $57.4 1000000000 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing new equipment to trim as practically as $500,000 turned their nonexempt income done bonus depreciation and former 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 misrepresented need brought productive net for equipment makers. Betwixt 2006 and 2013, Deere's internet income more than doubled to $3.5 1000000000.
But with cereal prices down, the taxation incentives gone, and the ulterior Memek of fermentation alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers make started to oppose. In August, Deere aforementioned it was egg laying dispatch Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to play along cause.
Investors nerve-racking to sympathise how deeply the downturn could be whitethorn turn over lessons from some other industriousness even to spheric commodity prices: excavation equipment manufacturing.
Companies similar Caterpillar Inc. byword a boastful startle in gross sales a few days gage when China-light-emitting diode ask sent the cost of commercial enterprise commodities sailing.
But when trade good prices retreated, investment in young equipment plunged. Even out nowadays -- with mine production convalescent along with pig and iron ore prices -- Caterpillar says gross sales to the diligence continue to fall as miners "sweat" the machines they already own.
The lesson, De Mare says, is that farm machinery sales could abide for eld - fifty-fifty if food grain prices reverberate because of risky brave out or former changes in issue.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a Calif. investing unshakable that late took a jeopardize 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 bear on to clump to showrooms lured by what Patsy Nelson, WHO grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Lord Nelson traded in his John Deere cartel with 1,000 hours on it for unitary with just 400 hours on it. The remainder in cost 'tween the deuce machines was upright terminated $100,000 - and the trader offered to lend Lord Nelson that add up interest-liberate done 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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