As US farm wheel turns, tractor makers May lose longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
e-chain mail
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Raise equipment makers insist the gross sales sink they present this twelvemonth because of lour snip prices and produce incomes testament be short-lived. Withal there are signs the downswing whitethorn final yearner than tractor and reaper makers, including John Deere & Co, are rental on and the bother could die hard tenacious subsequently corn, soybean and wheat berry prices bound.
Farmers and analysts enunciate the elimination of governing incentives to grease one's palms unexampled equipment, a germane overhang of secondhand tractors, and a rock-bottom dedication to biofuels, totally darken the mentality for the sphere beyond 2019 - the twelvemonth the U.S. Department of Agriculture says farm incomes bequeath set about to jump again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the President and chief executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigma tractors and harvesters.
Farmers care Dab Solon, WHO grows clavus and soybeans on a 1,500-acre Illinois farm, however, speech sound Former Armed Forces less offbeat.
Solon says corn whisky would demand to arise to at least $4.25 a fix from infra $3.50 at once for growers to sense sure-footed decent to take up purchasing New equipment over again. As freshly as 2012, corn whiskey fetched $8 a repair.
Such a saltation appears even to a lesser extent probable since Thursday, when the U.S. Section of Factory farm dilute its price estimates for the flow corn pasture to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - impulsive low-spirited prices and produce incomes round the orb and grim machinery makers' oecumenical gross revenue - is aggravated by former problems.
Farmers bought FAR more than equipment than they needful during the final upturn, which began in 2007 when the U.S. governing -- jumping on the spherical biofuel bandwagon -- orderly vitality firms to intermix increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and farm income More than doubled to $131 billion last-place twelvemonth from $57.4 one million million in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to knock off as often as $500,000 away their nonexempt income done fillip 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 Research.
While it lasted, the distorted need brought fatten up win for equipment makers. 'tween 2006 and 2013, Deere's meshing income to a greater extent than double to $3.5 1000000000.
But with caryopsis prices down, the task incentives gone, and the future of grain alcohol mandate in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers have got started to react. In August, Deere said it was egg laying hit to a greater extent than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to play along cause.
Investors nerve-wracking to understand how deeply the downswing could be English hawthorn debate lessons from some other industriousness trussed to spheric trade good prices: excavation equipment manufacturing.
Companies same Cat INC. sawing machine a crowing jump in gross sales a few years binding when China-LED require sent the monetary value of industrial commodities sailing.
But when commodity prices retreated, investing in Modern equipment plunged. Even out now -- with mine product recovering along with atomic number 29 and iron ore prices -- Caterpillar says gross sales to the industriousness proceed to tumble as miners "sweat" the machines they already own.
The lesson, De Mare says, is that farm machinery gross sales could have for Kontol days - eve if cereal prices recoil because of badly brave or Kontol former changes in append.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investing business firm that new took a hazard 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 go on to great deal to showrooms lured by what Commemorate Nelson, WHO grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his Deere corporate trust with 1,000 hours on it for matchless with just now 400 hours on it. The difference of opinion in terms between the deuce machines was merely all over $100,000 - and the monger offered to bestow Nelson that center interest-relieve 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 David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014e-chain mail
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Raise equipment makers insist the gross sales sink they present this twelvemonth because of lour snip prices and produce incomes testament be short-lived. Withal there are signs the downswing whitethorn final yearner than tractor and reaper makers, including John Deere & Co, are rental on and the bother could die hard tenacious subsequently corn, soybean and wheat berry prices bound.
Farmers and analysts enunciate the elimination of governing incentives to grease one's palms unexampled equipment, a germane overhang of secondhand tractors, and a rock-bottom dedication to biofuels, totally darken the mentality for the sphere beyond 2019 - the twelvemonth the U.S. Department of Agriculture says farm incomes bequeath set about to jump again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the President and chief executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigma tractors and harvesters.
Farmers care Dab Solon, WHO grows clavus and soybeans on a 1,500-acre Illinois farm, however, speech sound Former Armed Forces less offbeat.
Solon says corn whisky would demand to arise to at least $4.25 a fix from infra $3.50 at once for growers to sense sure-footed decent to take up purchasing New equipment over again. As freshly as 2012, corn whiskey fetched $8 a repair.
Such a saltation appears even to a lesser extent probable since Thursday, when the U.S. Section of Factory farm dilute its price estimates for the flow corn pasture to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - impulsive low-spirited prices and produce incomes round the orb and grim machinery makers' oecumenical gross revenue - is aggravated by former problems.
Farmers bought FAR more than equipment than they needful during the final upturn, which began in 2007 when the U.S. governing -- jumping on the spherical biofuel bandwagon -- orderly vitality firms to intermix increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and farm income More than doubled to $131 billion last-place twelvemonth from $57.4 one million million in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to knock off as often as $500,000 away their nonexempt income done fillip 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 Research.
While it lasted, the distorted need brought fatten up win for equipment makers. 'tween 2006 and 2013, Deere's meshing income to a greater extent than double to $3.5 1000000000.
But with caryopsis prices down, the task incentives gone, and the future of grain alcohol mandate in doubt, need has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers have got started to react. In August, Deere said it was egg laying hit to a greater extent than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to play along cause.
Investors nerve-wracking to understand how deeply the downswing could be English hawthorn debate lessons from some other industriousness trussed to spheric trade good prices: excavation equipment manufacturing.
Companies same Cat INC. sawing machine a crowing jump in gross sales a few years binding when China-LED require sent the monetary value of industrial commodities sailing.
But when commodity prices retreated, investing in Modern equipment plunged. Even out now -- with mine product recovering along with atomic number 29 and iron ore prices -- Caterpillar says gross sales to the industriousness proceed to tumble as miners "sweat" the machines they already own.
The lesson, De Mare says, is that farm machinery gross sales could have for Kontol days - eve if cereal prices recoil because of badly brave or Kontol former changes in append.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investing business firm that new took a hazard 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 go on to great deal to showrooms lured by what Commemorate Nelson, WHO grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his Deere corporate trust with 1,000 hours on it for matchless with just now 400 hours on it. The difference of opinion in terms between the deuce machines was merely all over $100,000 - and the monger offered to bestow Nelson that center interest-relieve 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 David Greising and Tomasz Janowski)
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