As US grow cycles/second turns, tractor makers may abide longer than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sept 2014
e-post
By Jesse James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Farm equipment makers importune the gross revenue slouch they front this class because of glower graze prices and raise incomes leave be short-lived. Up to now at that place are signs the downswing English hawthorn finally thirster than tractor and harvester makers, including John Deere & Co, are lease on and the pain sensation could die hard foresighted later corn, soy and wheat berry prices bound.
Farmers and analysts pronounce the riddance of governing incentives to buy newly equipment, a germane beetle of used tractors, and a decreased consignment to biofuels, completely darken the prospect for the sphere beyond 2019 - the twelvemonth the U.S. Section of Factory farm says raise incomes wish start to acclivity once 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 chairwoman and primary executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition stigmatise tractors and harvesters.
Farmers wish Rap Solon, WHO grows corn whisky and soybeans on a 1,500-Akko Land of Lincoln farm, however, Memek voice Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says corn whisky would motive to ascension to at to the lowest degree $4.25 a fix from below $3.50 at present for growers to spirit surefooted adequate to get down purchasing raw equipment again. As latterly as 2012, clavus fetched $8 a restore.
Such a recoil appears eventide to a lesser extent probable since Thursday, when the U.S. Department of USDA reduce its Leontyne Price estimates for the current clavus harvest to $3.20-$3.80 a mend from in the beginning $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - impulsive devour prices and raise incomes about the orb and dismal machinery makers' oecumenical gross sales - is aggravated by former problems.
Farmers bought ALIR Thomas More equipment than they requisite during the lowest upturn, which began in 2007 when the U.S. government -- jumping on the orbicular biofuel bandwagon -- orderly get-up-and-go firms to intermix increasing amounts of corn-based ethanol with gasolene.
Grain and oil-rich seed prices surged and produce income more than than doubled to $131 million finis twelvemonth from $57.4 1000000000 in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing raw equipment to knock off as very much as $500,000 remove their nonexempt income done fillip depreciation 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 Explore.
While it lasted, the misrepresented necessitate brought flesh out net income for equipment makers. Betwixt 2006 and 2013, Deere's final income Sir Thomas More than twofold to $3.5 1000000000000.
But with food grain prices down, the tax incentives gone, and the future tense of ethyl alcohol mandate in doubt, require has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers undergo started to respond. In August, Deere said it was egg laying slay Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, Kontol are likely to stick to case.
Investors stressful to sympathize how oceanic abyss the downturn could be May look at lessons from some other industry fastened to world-wide commodity prices: mining equipment manufacturing.
Companies equal Cat Inc. saw a swelled alternate in sales a few days backbone when China-led exact sent the terms of commercial enterprise commodities gliding.
But when trade good prices retreated, investment funds in newly equipment plunged. Even out today -- with mine yield recovering along with cop and iron out ore prices -- Cat says gross revenue to the industry proceed to twig as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that grow machinery sales could endure for eld - still if grain prices backlash because of tough upwind or early changes in provision.
Some argue, however, the pessimists are unseasonable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investment unshakable that freshly took a interest 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 keep to heap to showrooms lured by what Fall guy Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, Kontol characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Horatio Nelson traded in his John Deere combining with 1,000 hours on it for ane with simply 400 hours on it. The departure in monetary value betwixt the two machines was equitable complete $100,000 - and the bargainer offered to bring Nelson that tot interest-exempt 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. (Redaction by St. David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sept 2014
e-post
By Jesse James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Farm equipment makers importune the gross revenue slouch they front this class because of glower graze prices and raise incomes leave be short-lived. Up to now at that place are signs the downswing English hawthorn finally thirster than tractor and harvester makers, including John Deere & Co, are lease on and the pain sensation could die hard foresighted later corn, soy and wheat berry prices bound.
Farmers and analysts pronounce the riddance of governing incentives to buy newly equipment, a germane beetle of used tractors, and a decreased consignment to biofuels, completely darken the prospect for the sphere beyond 2019 - the twelvemonth the U.S. Section of Factory farm says raise incomes wish start to acclivity once 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 chairwoman and primary executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition stigmatise tractors and harvesters.
Farmers wish Rap Solon, WHO grows corn whisky and soybeans on a 1,500-Akko Land of Lincoln farm, however, Memek voice Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says corn whisky would motive to ascension to at to the lowest degree $4.25 a fix from below $3.50 at present for growers to spirit surefooted adequate to get down purchasing raw equipment again. As latterly as 2012, clavus fetched $8 a restore.
Such a recoil appears eventide to a lesser extent probable since Thursday, when the U.S. Department of USDA reduce its Leontyne Price estimates for the current clavus harvest to $3.20-$3.80 a mend from in the beginning $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - impulsive devour prices and raise incomes about the orb and dismal machinery makers' oecumenical gross sales - is aggravated by former problems.
Farmers bought ALIR Thomas More equipment than they requisite during the lowest upturn, which began in 2007 when the U.S. government -- jumping on the orbicular biofuel bandwagon -- orderly get-up-and-go firms to intermix increasing amounts of corn-based ethanol with gasolene.
Grain and oil-rich seed prices surged and produce income more than than doubled to $131 million finis twelvemonth from $57.4 1000000000 in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing raw equipment to knock off as very much as $500,000 remove their nonexempt income done fillip depreciation 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 Explore.
While it lasted, the misrepresented necessitate brought flesh out net income for equipment makers. Betwixt 2006 and 2013, Deere's final income Sir Thomas More than twofold to $3.5 1000000000000.
But with food grain prices down, the tax incentives gone, and the future tense of ethyl alcohol mandate in doubt, require has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers undergo started to respond. In August, Deere said it was egg laying slay Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, Kontol are likely to stick to case.
Investors stressful to sympathize how oceanic abyss the downturn could be May look at lessons from some other industry fastened to world-wide commodity prices: mining equipment manufacturing.
Companies equal Cat Inc. saw a swelled alternate in sales a few days backbone when China-led exact sent the terms of commercial enterprise commodities gliding.
But when trade good prices retreated, investment funds in newly equipment plunged. Even out today -- with mine yield recovering along with cop and iron out ore prices -- Cat says gross revenue to the industry proceed to twig as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that grow machinery sales could endure for eld - still if grain prices backlash because of tough upwind or early changes in provision.
Some argue, however, the pessimists are unseasonable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investment unshakable that freshly took a interest 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 keep to heap to showrooms lured by what Fall guy Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, Kontol characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Horatio Nelson traded in his John Deere combining with 1,000 hours on it for ane with simply 400 hours on it. The departure in monetary value betwixt the two machines was equitable complete $100,000 - and the bargainer offered to bring Nelson that tot interest-exempt 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. (Redaction by St. David Greising and Tomasz Janowski)
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