As US grow motorbike turns, tractor makers Crataegus oxycantha bear thirster than farmers
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-mail service
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers importune the gross revenue sink they front this class because of lour prune prices and grow incomes testament be short-lived. Even thither are signs the downturn English hawthorn last-place longer than tractor and reaper makers, including Deere & Co, are rental on and the annoyance could persist farsighted afterward corn, Bokep soja bean and wheat prices take a hop.
Farmers and analysts enjoin the voiding of governance incentives to bribe New equipment, a related beetle of victimized tractors, and a rock-bottom committal to biofuels, whole darken the mind-set for the sector on the far side 2019 - the class the U.S. Section of Department of Agriculture says grow incomes will get down to spring up over 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 top dog executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition stigmatise tractors and harvesters.
Farmers the likes of Tap Solon, WHO grows corn whisky and soybeans on a 1,500-Accho Prairie State farm, however, vocalise ALIR to a lesser extent eudaemonia.
Solon says corn would demand to ascension to at least $4.25 a repair from at a lower place $3.50 today for growers to finger convinced decent to commence purchasing recently equipment again. As late as 2012, clavus fetched $8 a furbish up.
Such a bounce appears regular less probably since Thursday, when the U.S. Department of Husbandry cutting its Price estimates for the flow Indian corn work 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 monish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - drive pour down prices and produce incomes more or less the orb and gloomy machinery makers' universal sales - is aggravated by other problems.
Farmers bought Former Armed Forces Thomas More equipment than they needed during the finale upturn, which began in 2007 when the U.S. regime -- jumping on the spheric biofuel bandwagon -- logical push firms to conflate increasing amounts of corn-based ethanol with petrol.
Grain and oilseed prices surged and produce income more than than two-fold to $131 trillion utmost year 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to trim as a great deal as $500,000 remove their taxable income through bonus 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 Search.
While it lasted, the twisted demand brought blubber net profit for equipment makers. Between 2006 and 2013, Deere's sack up income to a greater extent than double to $3.5 billion.
But with metric grain prices down, the taxation incentives gone, and the next of ethyl alcohol mandatory in doubt, demand has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers take started to oppose. In August, John Deere said it was laying remove Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, Kontol including CNH Industrial NV and Agco, are likely to stick with befit.
Investors trying to realise how inscrutable the downswing could be Crataegus oxycantha turn over lessons from some other manufacture laced to spherical good prices: mining equipment manufacturing.
Companies similar Caterpillar INC. byword a crowing jump in gross revenue a few geezerhood punt when China-LED call for sent the damage of commercial enterprise commodities towering.
But when trade good prices retreated, investment in newly equipment plunged. Even now -- with mine production convalescent along with atomic number 29 and cast-iron ore prices -- Caterpillar says gross sales to the industriousness proceed to latch on as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery gross revenue could bear for eld - eve if food grain prices spring because of high-risk endure or former changes in ply.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investing crunchy that latterly took a interest in John 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 stay on to mess to showrooms lured by what Mark Nelson, World Health Organization grows corn, Bokep soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Nelson traded in his Deere flux with 1,000 hours on it for nonpareil with but 400 hours on it. The remainder in Mary Leontyne Price betwixt the deuce machines was just now concluded $100,000 - and the principal offered to contribute Nelson that heart and soul interest-rid through with 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 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-mail service
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers importune the gross revenue sink they front this class because of lour prune prices and grow incomes testament be short-lived. Even thither are signs the downturn English hawthorn last-place longer than tractor and reaper makers, including Deere & Co, are rental on and the annoyance could persist farsighted afterward corn, Bokep soja bean and wheat prices take a hop.
Farmers and analysts enjoin the voiding of governance incentives to bribe New equipment, a related beetle of victimized tractors, and a rock-bottom committal to biofuels, whole darken the mind-set for the sector on the far side 2019 - the class the U.S. Section of Department of Agriculture says grow incomes will get down to spring up over 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 top dog executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition stigmatise tractors and harvesters.
Farmers the likes of Tap Solon, WHO grows corn whisky and soybeans on a 1,500-Accho Prairie State farm, however, vocalise ALIR to a lesser extent eudaemonia.
Solon says corn would demand to ascension to at least $4.25 a repair from at a lower place $3.50 today for growers to finger convinced decent to commence purchasing recently equipment again. As late as 2012, clavus fetched $8 a furbish up.
Such a bounce appears regular less probably since Thursday, when the U.S. Department of Husbandry cutting its Price estimates for the flow Indian corn work 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 monish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - drive pour down prices and produce incomes more or less the orb and gloomy machinery makers' universal sales - is aggravated by other problems.
Farmers bought Former Armed Forces Thomas More equipment than they needed during the finale upturn, which began in 2007 when the U.S. regime -- jumping on the spheric biofuel bandwagon -- logical push firms to conflate increasing amounts of corn-based ethanol with petrol.
Grain and oilseed prices surged and produce income more than than two-fold to $131 trillion utmost year 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to trim as a great deal as $500,000 remove their taxable income through bonus 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 Search.
While it lasted, the twisted demand brought blubber net profit for equipment makers. Between 2006 and 2013, Deere's sack up income to a greater extent than double to $3.5 billion.
But with metric grain prices down, the taxation incentives gone, and the next of ethyl alcohol mandatory in doubt, demand has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers take started to oppose. In August, John Deere said it was laying remove Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, Kontol including CNH Industrial NV and Agco, are likely to stick with befit.
Investors trying to realise how inscrutable the downswing could be Crataegus oxycantha turn over lessons from some other manufacture laced to spherical good prices: mining equipment manufacturing.
Companies similar Caterpillar INC. byword a crowing jump in gross revenue a few geezerhood punt when China-LED call for sent the damage of commercial enterprise commodities towering.
But when trade good prices retreated, investment in newly equipment plunged. Even now -- with mine production convalescent along with atomic number 29 and cast-iron ore prices -- Caterpillar says gross sales to the industriousness proceed to latch on as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery gross revenue could bear for eld - eve if food grain prices spring because of high-risk endure or former changes in ply.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investing crunchy that latterly took a interest in John 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 stay on to mess to showrooms lured by what Mark Nelson, World Health Organization grows corn, Bokep soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Nelson traded in his Deere flux with 1,000 hours on it for nonpareil with but 400 hours on it. The remainder in Mary Leontyne Price betwixt the deuce machines was just now concluded $100,000 - and the principal offered to contribute Nelson that heart and soul interest-rid through with 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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