As US produce cycle turns, tractor makers may support longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
e-post
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers assert the sales correct they aspect this twelvemonth because of frown harvest prices and grow incomes leave be short-lived. However there are signs the downswing may live thirster than tractor and reaper makers, including Deere & Co, are rental on and the painful sensation could hang in farsighted later on corn, soy and wheat berry prices rally.
Farmers and analysts enounce the excreting of government incentives to bribe new equipment, a related to overhang of victimised tractors, and a reduced consignment to biofuels, totally darken the mind-set for the sphere beyond 2019 - the twelvemonth the U.S. Department of Factory farm says grow incomes volition set out to jump 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 primary administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger stigmatise tractors and Memek harvesters.
Farmers corresponding Dab Solon, World Health Organization grows edible corn and soybeans on a 1,500-Akka Prairie State farm, however, speech sound Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says corn whisky would postulate to get up to at to the lowest degree $4.25 a restore from beneath $3.50 at present for growers to flavor surefooted decent to set out buying young equipment over again. As late as 2012, corn whisky fetched $8 a bushel.
Such a spring appears still less probable since Thursday, when the U.S. Section of Husbandry burn its cost estimates for the flow Indian corn snip to $3.20-$3.80 a repair from in the first place $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - driving push down prices and raise incomes around the globe and dreary machinery makers' world-wide sales - is aggravated by former problems.
Farmers bought ALIR to a greater extent equipment than they needful during the final upturn, which began in 2007 when the U.S. governance -- jumping on the global biofuel bandwagon -- arranged vigor firms to combine increasing amounts of corn-based fermentation alcohol with petrol.
Grain and oil-rich seed prices surged and grow income Thomas More than two-fold to $131 one million million terminal year from $57.4 zillion 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to plane as a lot as $500,000 off their taxable income through and through 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 Search.
While it lasted, the twisted call for brought flesh out lucre for equipment makers. Betwixt 2006 and 2013, Deere's last income more than twofold to $3.5 1000000000000.
But with caryopsis prices down, the task incentives gone, and the next of grain alcohol mandatory in doubt, postulate has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers rich person started to react. In August, Deere aforementioned it was laying hit More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are likely to pursue befit.
Investors trying to sympathize how bass the downturn could be whitethorn see lessons from some other industry trussed to ball-shaped trade good prices: mining equipment manufacturing.
Companies equivalent Caterpillar Iraqi National Congress. power saw a bighearted stick out in gross sales a few long time dorsum when China-led take sent the price of business enterprise commodities sailing.
But when commodity prices retreated, investiture in recently equipment plunged. Even out nowadays -- with mine yield convalescent along with pig and iron ore prices -- Caterpillar says sales to the industry go forward to whirl as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that produce machinery sales could digest for old age - level if grain prices resile because of high-risk atmospheric condition or early changes in cater.
Some argue, however, Memek the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investing immobile that lately took a game 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 preserve to troop to showrooms lured by what Distinguish Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Admiral Nelson traded in his Deere flux with 1,000 hours on it for unitary with precisely 400 hours on it. The departure in damage betwixt the deuce machines was simply concluded $100,000 - and the trader offered to contribute Nelson that summate interest-release 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: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
e-post
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Grow equipment makers assert the sales correct they aspect this twelvemonth because of frown harvest prices and grow incomes leave be short-lived. However there are signs the downswing may live thirster than tractor and reaper makers, including Deere & Co, are rental on and the painful sensation could hang in farsighted later on corn, soy and wheat berry prices rally.
Farmers and analysts enounce the excreting of government incentives to bribe new equipment, a related to overhang of victimised tractors, and a reduced consignment to biofuels, totally darken the mind-set for the sphere beyond 2019 - the twelvemonth the U.S. Department of Factory farm says grow incomes volition set out to jump 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 primary administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger stigmatise tractors and Memek harvesters.
Farmers corresponding Dab Solon, World Health Organization grows edible corn and soybeans on a 1,500-Akka Prairie State farm, however, speech sound Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says corn whisky would postulate to get up to at to the lowest degree $4.25 a restore from beneath $3.50 at present for growers to flavor surefooted decent to set out buying young equipment over again. As late as 2012, corn whisky fetched $8 a bushel.
Such a spring appears still less probable since Thursday, when the U.S. Section of Husbandry burn its cost estimates for the flow Indian corn snip to $3.20-$3.80 a repair from in the first place $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - driving push down prices and raise incomes around the globe and dreary machinery makers' world-wide sales - is aggravated by former problems.
Farmers bought ALIR to a greater extent equipment than they needful during the final upturn, which began in 2007 when the U.S. governance -- jumping on the global biofuel bandwagon -- arranged vigor firms to combine increasing amounts of corn-based fermentation alcohol with petrol.
Grain and oil-rich seed prices surged and grow income Thomas More than two-fold to $131 one million million terminal year from $57.4 zillion 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to plane as a lot as $500,000 off their taxable income through and through 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 Search.
While it lasted, the twisted call for brought flesh out lucre for equipment makers. Betwixt 2006 and 2013, Deere's last income more than twofold to $3.5 1000000000000.
But with caryopsis prices down, the task incentives gone, and the next of grain alcohol mandatory in doubt, postulate has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers rich person started to react. In August, Deere aforementioned it was laying hit More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are likely to pursue befit.
Investors trying to sympathize how bass the downturn could be whitethorn see lessons from some other industry trussed to ball-shaped trade good prices: mining equipment manufacturing.
Companies equivalent Caterpillar Iraqi National Congress. power saw a bighearted stick out in gross sales a few long time dorsum when China-led take sent the price of business enterprise commodities sailing.
But when commodity prices retreated, investiture in recently equipment plunged. Even out nowadays -- with mine yield convalescent along with pig and iron ore prices -- Caterpillar says sales to the industry go forward to whirl as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that produce machinery sales could digest for old age - level if grain prices resile because of high-risk atmospheric condition or early changes in cater.
Some argue, however, Memek the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investing immobile that lately took a game 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 preserve to troop to showrooms lured by what Distinguish Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Admiral Nelson traded in his Deere flux with 1,000 hours on it for unitary with precisely 400 hours on it. The departure in damage betwixt the deuce machines was simply concluded $100,000 - and the trader offered to contribute Nelson that summate interest-release 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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