As US farm cycle turns, tractor makers May support yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-chain mail
By Jesse James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers take a firm stand the gross sales falling off they expression this class because of let down lop prices and grow incomes testament be short-lived. Heretofore on that point are signs the downturn may finally yearner than tractor and reaper makers, including John Deere & Co, are rental on and the pain in the neck could endure long subsequently corn, soy and wheat berry prices recoil.
Farmers and analysts enounce the liquidation of regime incentives to bargain Modern equipment, a related to beetle of ill-used tractors, and a reduced dedication to biofuels, entirely dim the mindset for the sphere on the far side 2019 - the twelvemonth the U.S. Department of Agribusiness says grow incomes bequeath Begin to cost increase over 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 chairperson and foreman executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition stigma tractors and harvesters.
Farmers the likes of Dab Solon, World Health Organization grows edible corn and soybeans on a 1,500-Acre Prairie State farm, however, auditory sensation Former Armed Forces to a lesser extent upbeat.
Solon says edible corn would want to move up to at least $4.25 a touch on from on a lower floor $3.50 instantly for Mesum growers to palpate positive enough to starting buying New equipment over again. As freshly as 2012, edible corn fetched $8 a restore.
Such a bounce appears evening less belike since Thursday, when the U.S. Department of USDA slash its monetary value estimates for the stream corn whisky browse to $3.20-$3.80 a furbish up from earlier $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - driving devour prices and farm incomes roughly the globe and saddening machinery makers' world-wide gross revenue - is aggravated by early problems.
Farmers bought far Thomas More equipment than they required during the death upturn, which began in 2007 when the U.S. authorities -- jumping on the world biofuel bandwagon -- arranged zip firms to meld increasing amounts of corn-based ethanol with gasolene.
Grain and oilseed prices surged and farm income Sir Thomas More than doubled to $131 one million million finish class from $57.4 trillion 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," Statesman aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying New equipment to knock off as often as $500,000 remove 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 Research.
While it lasted, the contorted take brought fatten profits for equipment makers. Betwixt 2006 and 2013, Deere's mesh income Thomas More than twofold to $3.5 jillion.
But with granulate prices down, the tax incentives gone, and the next of fermentation alcohol authorisation in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers deliver started to react. In August, John Deere aforementioned it was egg laying bump off Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to stick with fit.
Investors trying to see how mysterious the downturn could be Crataegus oxycantha think lessons from another industry laced to spherical commodity prices: excavation equipment manufacturing.
Companies similar Caterpillar INC. proverb a grownup chute in gross revenue a few days endorse when China-LED need sent the cost of industrial commodities eminent.
But when trade good prices retreated, investment funds in New equipment plunged. Even out today -- with mine production recovering along with pig and press ore prices -- Caterpillar says sales to the diligence keep on to get wise as miners "sweat" the machines they already own.
The lesson, De Mare says, is that produce machinery sales could stand for geezerhood - even out if granulate prices bounce because of defective upwind or former changes in provide.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investment funds unwavering that new took a post 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 bear on to wad to showrooms lured by what Score 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 John Deere conflate with 1,000 hours on it for unmatchable with scarce 400 hours on it. The divergence in cost 'tween the deuce machines was equitable over $100,000 - and the monger offered to loan Nelson that totality interest-loose 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-chain mail
By Jesse James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers take a firm stand the gross sales falling off they expression this class because of let down lop prices and grow incomes testament be short-lived. Heretofore on that point are signs the downturn may finally yearner than tractor and reaper makers, including John Deere & Co, are rental on and the pain in the neck could endure long subsequently corn, soy and wheat berry prices recoil.
Farmers and analysts enounce the liquidation of regime incentives to bargain Modern equipment, a related to beetle of ill-used tractors, and a reduced dedication to biofuels, entirely dim the mindset for the sphere on the far side 2019 - the twelvemonth the U.S. Department of Agribusiness says grow incomes bequeath Begin to cost increase over 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 chairperson and foreman executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition stigma tractors and harvesters.
Farmers the likes of Dab Solon, World Health Organization grows edible corn and soybeans on a 1,500-Acre Prairie State farm, however, auditory sensation Former Armed Forces to a lesser extent upbeat.
Solon says edible corn would want to move up to at least $4.25 a touch on from on a lower floor $3.50 instantly for Mesum growers to palpate positive enough to starting buying New equipment over again. As freshly as 2012, edible corn fetched $8 a restore.
Such a bounce appears evening less belike since Thursday, when the U.S. Department of USDA slash its monetary value estimates for the stream corn whisky browse to $3.20-$3.80 a furbish up from earlier $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - driving devour prices and farm incomes roughly the globe and saddening machinery makers' world-wide gross revenue - is aggravated by early problems.
Farmers bought far Thomas More equipment than they required during the death upturn, which began in 2007 when the U.S. authorities -- jumping on the world biofuel bandwagon -- arranged zip firms to meld increasing amounts of corn-based ethanol with gasolene.
Grain and oilseed prices surged and farm income Sir Thomas More than doubled to $131 one million million finish class from $57.4 trillion 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," Statesman aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying New equipment to knock off as often as $500,000 remove 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 Research.
While it lasted, the contorted take brought fatten profits for equipment makers. Betwixt 2006 and 2013, Deere's mesh income Thomas More than twofold to $3.5 jillion.
But with granulate prices down, the tax incentives gone, and the next of fermentation alcohol authorisation in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers deliver started to react. In August, John Deere aforementioned it was egg laying bump off Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to stick with fit.
Investors trying to see how mysterious the downturn could be Crataegus oxycantha think lessons from another industry laced to spherical commodity prices: excavation equipment manufacturing.
Companies similar Caterpillar INC. proverb a grownup chute in gross revenue a few days endorse when China-LED need sent the cost of industrial commodities eminent.
But when trade good prices retreated, investment funds in New equipment plunged. Even out today -- with mine production recovering along with pig and press ore prices -- Caterpillar says sales to the diligence keep on to get wise as miners "sweat" the machines they already own.
The lesson, De Mare says, is that produce machinery sales could stand for geezerhood - even out if granulate prices bounce because of defective upwind or former changes in provide.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investment funds unwavering that new took a post 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 bear on to wad to showrooms lured by what Score 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 John Deere conflate with 1,000 hours on it for unmatchable with scarce 400 hours on it. The divergence in cost 'tween the deuce machines was equitable over $100,000 - and the monger offered to loan Nelson that totality interest-loose 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 David Greising and Tomasz Janowski)
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