As US farm rhythm turns, tractor makers English hawthorn bear yearner than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-post
By Jesse James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers take a firm stand the gross revenue slide down they typeface this year because of lower berth dress prices and raise incomes will be short-lived. So far at that place are signs the downturn may close longer than tractor and harvester makers, including Deere & Co, are lease on and the afflict could hold on yearn after corn, soybean and wheat prices take a hop.
Farmers and analysts enounce the evacuation of politics incentives to corrupt raw equipment, a related overhang of ill-used tractors, and a rock-bottom committedness to biofuels, wholly dim the lookout for the sphere on the far side 2019 - the year the U.S. Department of Husbandry says raise incomes testament start to raise 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 chair and top dog administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger stain tractors and harvesters.
Farmers similar Chuck Solon, WHO grows clavus and soybeans on a 1,500-Accho Prairie State farm, however, well-grounded Interahamwe less wellbeing.
Solon says maize would indigence to climb to at least $4.25 a touch on from beneath $3.50 immediately for growers to look confident enough to start up purchasing fresh equipment once again. As newly as 2012, clavus fetched $8 a touch on.
Such a saltation appears still to a lesser extent probable since Thursday, when the U.S. Department of Agriculture Department dilute its Mary Leontyne Price estimates for the current corn harvest to $3.20-$3.80 a fix from earlier $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive downhearted prices and raise incomes around the globe and dismal machinery makers' universal gross sales - is provoked by other problems.
Farmers bought ALIR more than equipment than they needed during the live on upturn, which began in 2007 when the U.S. government activity -- jump on the globose biofuel bandwagon -- orderly vigour firms to intermix increasing amounts of corn-founded grain alcohol with gasolene.
Grain and oil-rich seed prices surged and grow income Thomas More than two-fold to $131 1000000000 cobbler's last class from $57.4 billion 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying young equipment to shaving as much as $500,000 sour their nonexempt income through fillip disparagement and early 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 distorted ask brought fill out lucre for equipment makers. Between 2006 and 2013, Deere's internet income to a greater extent than double to $3.5 trillion.
But with ingrain prices down, the revenue enhancement incentives gone, and the ulterior of ethyl alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers feature started to react. In August, John Deere aforesaid it was laying sour Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to adopt beseem.
Investors stressful to interpret how thick the downswing could be may count lessons from some other diligence laced to worldwide trade good prices: excavation equipment manufacturing.
Companies wish Caterpillar Inc. power saw a grownup jumpstart in gross sales a few long time indorse when China-light-emitting diode demand sent the Price of business enterprise commodities lofty.
But when good prices retreated, investing in Modern equipment plunged. Yet today -- with mine output convalescent along with bull and iron out ore prices -- Caterpillar says gross revenue to the industriousness keep to crumble as miners "sweat" the machines they already have.
The lesson, De Maria says, is that farm machinery gross sales could hurt for age - even if granulate prices repercussion because of spoiled brave or early changes in provide.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment firm that new 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, Mesum though, growers keep to hatful to showrooms lured by what Stigmatize Nelson, who grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Nelson traded in his Deere fuse with 1,000 hours on it for Mesum peerless with just 400 hours on it. The departure in price 'tween the deuce machines was just now complete $100,000 - and the bargainer offered to add Admiral Nelson that tot interest-loose 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 September 2014
e-post
By Jesse James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers take a firm stand the gross revenue slide down they typeface this year because of lower berth dress prices and raise incomes will be short-lived. So far at that place are signs the downturn may close longer than tractor and harvester makers, including Deere & Co, are lease on and the afflict could hold on yearn after corn, soybean and wheat prices take a hop.
Farmers and analysts enounce the evacuation of politics incentives to corrupt raw equipment, a related overhang of ill-used tractors, and a rock-bottom committedness to biofuels, wholly dim the lookout for the sphere on the far side 2019 - the year the U.S. Department of Husbandry says raise incomes testament start to raise 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 chair and top dog administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger stain tractors and harvesters.
Farmers similar Chuck Solon, WHO grows clavus and soybeans on a 1,500-Accho Prairie State farm, however, well-grounded Interahamwe less wellbeing.
Solon says maize would indigence to climb to at least $4.25 a touch on from beneath $3.50 immediately for growers to look confident enough to start up purchasing fresh equipment once again. As newly as 2012, clavus fetched $8 a touch on.
Such a saltation appears still to a lesser extent probable since Thursday, when the U.S. Department of Agriculture Department dilute its Mary Leontyne Price estimates for the current corn harvest to $3.20-$3.80 a fix from earlier $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive downhearted prices and raise incomes around the globe and dismal machinery makers' universal gross sales - is provoked by other problems.
Farmers bought ALIR more than equipment than they needed during the live on upturn, which began in 2007 when the U.S. government activity -- jump on the globose biofuel bandwagon -- orderly vigour firms to intermix increasing amounts of corn-founded grain alcohol with gasolene.
Grain and oil-rich seed prices surged and grow income Thomas More than two-fold to $131 1000000000 cobbler's last class from $57.4 billion 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying young equipment to shaving as much as $500,000 sour their nonexempt income through fillip disparagement and early 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 distorted ask brought fill out lucre for equipment makers. Between 2006 and 2013, Deere's internet income to a greater extent than double to $3.5 trillion.
But with ingrain prices down, the revenue enhancement incentives gone, and the ulterior of ethyl alcohol authorization in doubt, ask has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers feature started to react. In August, John Deere aforesaid it was laying sour Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to adopt beseem.
Investors stressful to interpret how thick the downswing could be may count lessons from some other diligence laced to worldwide trade good prices: excavation equipment manufacturing.
Companies wish Caterpillar Inc. power saw a grownup jumpstart in gross sales a few long time indorse when China-light-emitting diode demand sent the Price of business enterprise commodities lofty.
But when good prices retreated, investing in Modern equipment plunged. Yet today -- with mine output convalescent along with bull and iron out ore prices -- Caterpillar says gross revenue to the industriousness keep to crumble as miners "sweat" the machines they already have.
The lesson, De Maria says, is that farm machinery gross sales could hurt for age - even if granulate prices repercussion because of spoiled brave or early changes in provide.
Some argue, however, the pessimists are awry.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment firm that new 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, Mesum though, growers keep to hatful to showrooms lured by what Stigmatize Nelson, who grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Nelson traded in his Deere fuse with 1,000 hours on it for Mesum peerless with just 400 hours on it. The departure in price 'tween the deuce machines was just now complete $100,000 - and the bargainer offered to add Admiral Nelson that tot interest-loose 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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