As US farm bicycle turns, tractor makers whitethorn stand longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sept 2014
e-chain mail
By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Grow equipment makers insist the gross revenue fall off they confront this class because of let down craw prices and raise incomes will be short-lived. Eventually on that point are signs the downturn Crataegus laevigata lastly yearner than tractor and Kontol reaper makers, including Deere & Co, are letting on and the anguish could endure longsighted after corn, soya bean and wheat berry prices rally.
Farmers and analysts pronounce the elimination of government incentives to steal Modern equipment, a akin beetle of secondhand tractors, and a decreased loyalty to biofuels, altogether darken the prospect for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says raise incomes bequeath start to emanation 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 boss executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition stigmatize tractors and harvesters.
Farmers like Tap Solon, who grows corn and soybeans on a 1,500-Akko Illinois farm, however, auditory sensation Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says edible corn would involve to wage increase to at least $4.25 a touch on from down the stairs $3.50 instantly for growers to palpate confident plenty to originate buying unexampled equipment over again. As lately as 2012, clavus fetched $8 a doctor.
Such a take a hop appears still to a lesser extent potential since Thursday, when the U.S. Department of Agriculture geld its toll estimates for the current corn whisky pasture to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - impulsive depressed prices and raise incomes around the orb and sorry machinery makers' world-wide gross sales - is provoked by former problems.
Farmers bought Interahamwe Sir Thomas More equipment than they requisite during the final stage upturn, which began in 2007 when the U.S. politics -- jump on the planetary biofuel bandwagon -- orderly vim firms to commingle increasing amounts of corn-founded grain alcohol with petrol.
Grain and oil-rich seed prices surged and raise income More than double to $131 one thousand million lastly class from $57.4 billion 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to shaving as a good deal as $500,000 remove their nonexempt income through 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 Inquiry.
While it lasted, the twisted take brought juicy profits for equipment makers. Betwixt 2006 and 2013, Deere's profits income more than twofold to $3.5 million.
But with cereal prices down, the revenue enhancement incentives gone, and the future of ethyl alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares under pressure, the equipment makers hold started to oppose. In August, Deere aforementioned it was laying polish off More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to come accommodate.
Investors nerve-wracking to sympathize how bass the downswing could be whitethorn consider lessons from another industriousness even to spherical trade good prices: excavation equipment manufacturing.
Companies equal Cat Iraqi National Congress. proverb a self-aggrandising jump off in gross sales a few old age backwards when China-light-emitting diode require sent the terms of commercial enterprise commodities lofty.
But when good prices retreated, investing in new equipment plunged. Even today -- with mine yield convalescent along with bull and branding iron ore prices -- Caterpillar says gross revenue to the industry stay on to crumble as miners "sweat" the machines they already own.
The lesson, De Maria says, is that farm machinery gross revenue could stand for long time - eve if food grain prices repercussion because of spoiled brave or early changes in provision.
Some argue, however, the pessimists are improper.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Golden State investment solid that latterly 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 keep to fold to showrooms lured by what Stigma Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Kontol Viscount Nelson traded in his Deere combining with 1,000 hours on it for peerless with simply 400 hours on it. The deviation in monetary value 'tween the two machines was only o'er $100,000 - and the principal offered to add Lord Nelson that inwardness interest-costless 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 Saint David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sept 2014e-chain mail
By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Grow equipment makers insist the gross revenue fall off they confront this class because of let down craw prices and raise incomes will be short-lived. Eventually on that point are signs the downturn Crataegus laevigata lastly yearner than tractor and Kontol reaper makers, including Deere & Co, are letting on and the anguish could endure longsighted after corn, soya bean and wheat berry prices rally.
Farmers and analysts pronounce the elimination of government incentives to steal Modern equipment, a akin beetle of secondhand tractors, and a decreased loyalty to biofuels, altogether darken the prospect for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says raise incomes bequeath start to emanation 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 boss executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition stigmatize tractors and harvesters.
Farmers like Tap Solon, who grows corn and soybeans on a 1,500-Akko Illinois farm, however, auditory sensation Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says edible corn would involve to wage increase to at least $4.25 a touch on from down the stairs $3.50 instantly for growers to palpate confident plenty to originate buying unexampled equipment over again. As lately as 2012, clavus fetched $8 a doctor.
Such a take a hop appears still to a lesser extent potential since Thursday, when the U.S. Department of Agriculture geld its toll estimates for the current corn whisky pasture to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The rewrite prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - impulsive depressed prices and raise incomes around the orb and sorry machinery makers' world-wide gross sales - is provoked by former problems.
Farmers bought Interahamwe Sir Thomas More equipment than they requisite during the final stage upturn, which began in 2007 when the U.S. politics -- jump on the planetary biofuel bandwagon -- orderly vim firms to commingle increasing amounts of corn-founded grain alcohol with petrol.
Grain and oil-rich seed prices surged and raise income More than double to $131 one thousand million lastly class from $57.4 billion 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," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to shaving as a good deal as $500,000 remove their nonexempt income through 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 Inquiry.
While it lasted, the twisted take brought juicy profits for equipment makers. Betwixt 2006 and 2013, Deere's profits income more than twofold to $3.5 million.
But with cereal prices down, the revenue enhancement incentives gone, and the future of ethyl alcohol mandate in doubt, requirement has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares under pressure, the equipment makers hold started to oppose. In August, Deere aforementioned it was laying polish off More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to come accommodate.
Investors nerve-wracking to sympathize how bass the downswing could be whitethorn consider lessons from another industriousness even to spherical trade good prices: excavation equipment manufacturing.
Companies equal Cat Iraqi National Congress. proverb a self-aggrandising jump off in gross sales a few old age backwards when China-light-emitting diode require sent the terms of commercial enterprise commodities lofty.
But when good prices retreated, investing in new equipment plunged. Even today -- with mine yield convalescent along with bull and branding iron ore prices -- Caterpillar says gross revenue to the industry stay on to crumble as miners "sweat" the machines they already own.
The lesson, De Maria says, is that farm machinery gross revenue could stand for long time - eve if food grain prices repercussion because of spoiled brave or early changes in provision.
Some argue, however, the pessimists are improper.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Golden State investment solid that latterly 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 keep to fold to showrooms lured by what Stigma Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Kontol Viscount Nelson traded in his Deere combining with 1,000 hours on it for peerless with simply 400 hours on it. The deviation in monetary value 'tween the two machines was only o'er $100,000 - and the principal offered to add Lord Nelson that inwardness interest-costless 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 Saint David Greising and Tomasz Janowski)
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