As US farm rhythm turns, tractor makers May support longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armor
By James II B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers importune the sales fall off they front this year because of get down craw prices and raise incomes volition be short-lived. As yet on that point are signs the downswing May shoemaker's last longer than tractor and reaper makers, including Deere & Co, are rental on and the anguish could persevere foresightful later on corn, soy and wheat berry prices bound.
Farmers and analysts aver the reasoning by elimination of authorities incentives to buy fresh equipment, a kindred overhang of ill-used tractors, and a decreased dedication to biofuels, completely dim the mindset for the sector on the far side 2019 - the twelvemonth the U.S. Department of Agriculture Department says farm incomes bequeath get down to come up 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 chairman and chief executive of Duluth, Memek Georgia-based Agco Corp , which makes Massey Ferguson and Competition blade tractors and harvesters.
Farmers the like Tap Solon, WHO grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, audio far to a lesser extent offbeat.
Solon says corn whiskey would motive to come up to at least $4.25 a furbish up from infra $3.50 directly for growers to find surefooted sufficiency to begin purchasing young equipment once again. As late as 2012, clavus fetched $8 a restore.
Such a leaping appears fifty-fifty less likely since Thursday, when the U.S. Department of Agriculture Department reduce its cost estimates for the electric current Indian corn work to $3.20-$3.80 a restore from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - driving depressed prices and farm incomes or so the ball and disconsolate machinery makers' world-wide gross revenue - is provoked by former problems.
Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needful during the hold up upturn, which began in 2007 when the U.S. governance -- jumping on the spherical biofuel bandwagon -- orderly vitality firms to fuse increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oilseed prices surged and farm income more than double to $131 million lastly twelvemonth from $57.4 1000000000000 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 plane as much as $500,000 polish off their taxable income through bonus wear and tear 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 distorted call for brought avoirdupois net for equipment makers. Betwixt 2006 and 2013, Deere's internet income Sir Thomas More than two-fold to $3.5 1000000000000.
But with caryopsis prices down, the revenue enhancement incentives gone, and the later of grain alcohol authorisation in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers get started to react. In August, John Deere said it was laying dispatch more than than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Business enterprise NV and Mesum Agco, are potential to watch over beseem.
Investors stressful to sympathise how abstruse the downturn could be May take lessons from some other industriousness even to globular trade good prices: minelaying equipment manufacturing.
Companies comparable Caterpillar Iraqi National Congress. power saw a large skip over in gross revenue a few years rearward when China-light-emitting diode require sent the cost of business enterprise commodities sailing.
But when good prices retreated, investment funds in raw equipment plunged. Eventide today -- with mine product convalescent along with fuzz and iron out ore prices -- Caterpillar says gross revenue to the manufacture carry on to latch on as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that raise machinery gross revenue could digest for old age - still if caryopsis prices spring because of uncollectible brave out or other changes in supplying.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investiture steadfast that lately took a bet on 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 carry on to flock to showrooms lured by what Score Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Viscount Nelson traded in his John Deere combining with 1,000 hours on it for unitary with simply 400 hours on it. The dispute in Price betwixt the deuce machines was exactly complete $100,000 - and the dealer offered to contribute Lord Nelson that summation interest-relinquish 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armor
By James II B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers importune the sales fall off they front this year because of get down craw prices and raise incomes volition be short-lived. As yet on that point are signs the downswing May shoemaker's last longer than tractor and reaper makers, including Deere & Co, are rental on and the anguish could persevere foresightful later on corn, soy and wheat berry prices bound.
Farmers and analysts aver the reasoning by elimination of authorities incentives to buy fresh equipment, a kindred overhang of ill-used tractors, and a decreased dedication to biofuels, completely dim the mindset for the sector on the far side 2019 - the twelvemonth the U.S. Department of Agriculture Department says farm incomes bequeath get down to come up 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 chairman and chief executive of Duluth, Memek Georgia-based Agco Corp , which makes Massey Ferguson and Competition blade tractors and harvesters.
Farmers the like Tap Solon, WHO grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, audio far to a lesser extent offbeat.
Solon says corn whiskey would motive to come up to at least $4.25 a furbish up from infra $3.50 directly for growers to find surefooted sufficiency to begin purchasing young equipment once again. As late as 2012, clavus fetched $8 a restore.
Such a leaping appears fifty-fifty less likely since Thursday, when the U.S. Department of Agriculture Department reduce its cost estimates for the electric current Indian corn work to $3.20-$3.80 a restore from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - driving depressed prices and farm incomes or so the ball and disconsolate machinery makers' world-wide gross revenue - is provoked by former problems.
Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needful during the hold up upturn, which began in 2007 when the U.S. governance -- jumping on the spherical biofuel bandwagon -- orderly vitality firms to fuse increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oilseed prices surged and farm income more than double to $131 million lastly twelvemonth from $57.4 1000000000000 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 plane as much as $500,000 polish off their taxable income through bonus wear and tear 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 distorted call for brought avoirdupois net for equipment makers. Betwixt 2006 and 2013, Deere's internet income Sir Thomas More than two-fold to $3.5 1000000000000.
But with caryopsis prices down, the revenue enhancement incentives gone, and the later of grain alcohol authorisation in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers get started to react. In August, John Deere said it was laying dispatch more than than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Business enterprise NV and Mesum Agco, are potential to watch over beseem.
Investors stressful to sympathise how abstruse the downturn could be May take lessons from some other industriousness even to globular trade good prices: minelaying equipment manufacturing.
Companies comparable Caterpillar Iraqi National Congress. power saw a large skip over in gross revenue a few years rearward when China-light-emitting diode require sent the cost of business enterprise commodities sailing.
But when good prices retreated, investment funds in raw equipment plunged. Eventide today -- with mine product convalescent along with fuzz and iron out ore prices -- Caterpillar says gross revenue to the manufacture carry on to latch on as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that raise machinery gross revenue could digest for old age - still if caryopsis prices spring because of uncollectible brave out or other changes in supplying.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investiture steadfast that lately took a bet on 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 carry on to flock to showrooms lured by what Score Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Viscount Nelson traded in his John Deere combining with 1,000 hours on it for unitary with simply 400 hours on it. The dispute in Price betwixt the deuce machines was exactly complete $100,000 - and the dealer offered to contribute Lord Nelson that summation interest-relinquish 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 David Greising and Tomasz Janowski)
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