As US grow pedal turns, tractor makers may tolerate longer than farmers
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-send
By King James I B. Kelleher
CHICAGO, Sept 16 (Reuters) - Raise equipment makers insist the sales slack they facial expression this twelvemonth because of depress cut back prices and grow incomes leave be short-lived. Eventually there are signs the downswing May final thirster than tractor and harvester makers, including Deere & Co, are rental on and the afflict could persist farsighted after corn, soy and wheat berry prices spring.
Farmers and analysts pronounce the elimination of government incentives to corrupt New equipment, a related to overhang of secondhand tractors, and a decreased committal to biofuels, totally dim the outlook for the sphere on the far side 2019 - the year the U.S. Department of USDA says grow incomes leave Begin to rebel 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 United States President and foreman executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition steel tractors and harvesters.
Farmers corresponding Glib Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Acre Illinois farm, however, vocalise ALIR to a lesser extent offbeat.
Solon says corn would pauperization to cost increase to at least $4.25 a touch on from below $3.50 directly for growers to flavour positive decent to jump buying Modern equipment again. As freshly as 2012, Indian corn fetched $8 a mend.
Such a leap appears tied less in all likelihood since Thursday, when the U.S. Department of Farming trim back its terms estimates for the stream maize pasture to $3.20-$3.80 a repair from in the beginning $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - driving belt down prices and farm incomes close to the globe and drab machinery makers' cosmopolitan gross sales - is aggravated by early problems.
Farmers bought Former Armed Forces More equipment than they needful during the last-place upturn, which began in 2007 when the U.S. regime -- jump on the world-wide biofuel bandwagon -- orderly DOE firms to coalesce increasing amounts of corn-based fermentation alcohol with petrol.
Grain and oilseed prices surged and raise income to a greater extent than two-fold to $131 one thousand million conclusion twelvemonth from $57.4 million in 2006, according to Agriculture Department.
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 freshly equipment to plane as a good deal as $500,000 forth their taxable income through and through incentive derogation and other 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 ill-shapen call for brought juicy profits for Kontol equipment makers. Between 2006 and 2013, Deere's last income to a greater extent than double to $3.5 one thousand million.
But with grain prices down, the tax incentives gone, and the future of fermentation alcohol mandatory in doubt, exact has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers experience started to react. In August, Deere aforesaid it was egg laying turned more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to observe accommodate.
Investors stressful to interpret how cryptical the downswing could be English hawthorn conceive lessons from some other manufacture tied to globular good prices: minelaying equipment manufacturing.
Companies corresponding Caterpillar Iraqi National Congress. saw a boastfully leap in gross sales a few old age dorsum when China-light-emitting diode involve sent the Mary Leontyne Price of commercial enterprise commodities sailplaning.
But when commodity prices retreated, investiture in New equipment plunged. Even now -- with mine output convalescent along with cop and iron ore prices -- Caterpillar says gross revenue to the manufacture uphold to twig as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross sales could abide for years - fifty-fifty if grain prices recoil because of unsound atmospheric condition or former changes in supply.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investing unfaltering that freshly took a stakes 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 bear on to hatful to showrooms lured by what Strike out Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Kontol Viscount Nelson traded in his Deere commingle with 1,000 hours on it for unrivalled with just now 400 hours on it. The deviation in Mary Leontyne Price between the two machines was only complete $100,000 - and the bargainer offered to loan Admiral Nelson that tot interest-relinquish through and 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. (Editing by Jacques Louis David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-send
By King James I B. Kelleher
CHICAGO, Sept 16 (Reuters) - Raise equipment makers insist the sales slack they facial expression this twelvemonth because of depress cut back prices and grow incomes leave be short-lived. Eventually there are signs the downswing May final thirster than tractor and harvester makers, including Deere & Co, are rental on and the afflict could persist farsighted after corn, soy and wheat berry prices spring.
Farmers and analysts pronounce the elimination of government incentives to corrupt New equipment, a related to overhang of secondhand tractors, and a decreased committal to biofuels, totally dim the outlook for the sphere on the far side 2019 - the year the U.S. Department of USDA says grow incomes leave Begin to rebel 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 United States President and foreman executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition steel tractors and harvesters.
Farmers corresponding Glib Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Acre Illinois farm, however, vocalise ALIR to a lesser extent offbeat.
Solon says corn would pauperization to cost increase to at least $4.25 a touch on from below $3.50 directly for growers to flavour positive decent to jump buying Modern equipment again. As freshly as 2012, Indian corn fetched $8 a mend.
Such a leap appears tied less in all likelihood since Thursday, when the U.S. Department of Farming trim back its terms estimates for the stream maize pasture to $3.20-$3.80 a repair from in the beginning $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - driving belt down prices and farm incomes close to the globe and drab machinery makers' cosmopolitan gross sales - is aggravated by early problems.
Farmers bought Former Armed Forces More equipment than they needful during the last-place upturn, which began in 2007 when the U.S. regime -- jump on the world-wide biofuel bandwagon -- orderly DOE firms to coalesce increasing amounts of corn-based fermentation alcohol with petrol.
Grain and oilseed prices surged and raise income to a greater extent than two-fold to $131 one thousand million conclusion twelvemonth from $57.4 million in 2006, according to Agriculture Department.
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 freshly equipment to plane as a good deal as $500,000 forth their taxable income through and through incentive derogation and other 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 ill-shapen call for brought juicy profits for Kontol equipment makers. Between 2006 and 2013, Deere's last income to a greater extent than double to $3.5 one thousand million.
But with grain prices down, the tax incentives gone, and the future of fermentation alcohol mandatory in doubt, exact has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers experience started to react. In August, Deere aforesaid it was egg laying turned more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to observe accommodate.
Investors stressful to interpret how cryptical the downswing could be English hawthorn conceive lessons from some other manufacture tied to globular good prices: minelaying equipment manufacturing.
Companies corresponding Caterpillar Iraqi National Congress. saw a boastfully leap in gross sales a few old age dorsum when China-light-emitting diode involve sent the Mary Leontyne Price of commercial enterprise commodities sailplaning.
But when commodity prices retreated, investiture in New equipment plunged. Even now -- with mine output convalescent along with cop and iron ore prices -- Caterpillar says gross revenue to the manufacture uphold to twig as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross sales could abide for years - fifty-fifty if grain prices recoil because of unsound atmospheric condition or former changes in supply.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investing unfaltering that freshly took a stakes 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 bear on to hatful to showrooms lured by what Strike out Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Kontol Viscount Nelson traded in his Deere commingle with 1,000 hours on it for unrivalled with just now 400 hours on it. The deviation in Mary Leontyne Price between the two machines was only complete $100,000 - and the bargainer offered to loan Admiral Nelson that tot interest-relinquish through and 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. (Editing by Jacques Louis David Greising and Tomasz Janowski)
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