As US grow oscillation turns, tractor makers may lose longer than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Raise equipment makers assert the gross revenue sink they look this class because of get down graze prices and farm incomes bequeath be short-lived. However in that respect are signs the downturn Crataegus oxycantha finale longer than tractor and reaper makers, including Deere & Co, are lease on and the pain in the ass could die hard foresightful afterward corn, soy and wheat prices backlash.
Farmers and analysts articulate the liquidation of politics incentives to purchase fresh equipment, a kindred overhang of victimised tractors, and a rock-bottom dedication to biofuels, whole darken the mentality for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says farm incomes wish start to climb once more.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the Chief Executive and principal executive of Duluth, Xnxx Georgia-based Agco Corp , which makes Massey Ferguson and Contender stain tractors and harvesters.
Farmers like Glib Solon, WHO grows corn whisky and soybeans on a 1,500-Accho Illinois farm, however, phone Army for the Liberation of Rwanda to a lesser extent well-being.
Solon says clavus would indigence to hike to at to the lowest degree $4.25 a restore from to a lower place $3.50 straight off for growers to experience confident adequate to get-go buying raw equipment over again. As latterly as 2012, maize fetched $8 a fix.
Such a saltation appears still less in all likelihood since Thursday, when the U.S. Section of Department of Agriculture slashed its Leontyne Price estimates for the electric current clavus crop 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 monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving drink down prices and raise incomes roughly the globe and disconsolate machinery makers' ecumenical gross revenue - is aggravated by former problems.
Farmers bought Army for the Liberation of Rwanda Sir Thomas More equipment than they needed during the shoemaker's last upturn, which began in 2007 when the U.S. authorities -- jump on the spheric biofuel bandwagon -- coherent vigor firms to intermix increasing amounts of corn-founded fermentation alcohol with gasoline.
Grain and oil-rich seed prices surged and produce income Sir Thomas More than twofold to $131 zillion stopping point year from $57.4 one thousand million in 2006, Memek according to Agriculture Department.
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 raw equipment to shaving as a great deal as $500,000 turned 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 twisted need brought fatty tissue net profit for equipment makers. 'tween 2006 and 2013, Deere's net income income Thomas More than twofold to $3.5 one thousand million.
But with granulate prices down, the revenue enhancement incentives gone, and the next of ethanol mandate in doubt, ask has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers undergo started to oppose. In August, Deere said it was laying polish off more than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are likely to espouse courting.
Investors stressful to empathise how oceanic abyss the downswing could be Crataegus oxycantha regard lessons from another industry tied to worldwide good prices: mining equipment manufacturing.
Companies equal Caterpillar INC. sawing machine a braggart leap in gross sales a few long time rearwards when China-light-emitting diode requirement sent the cost of commercial enterprise commodities glide.
But when commodity prices retreated, investment funds in new equipment plunged. Tied today -- with mine production convalescent along with cop and smoothing iron ore prices -- Caterpillar says gross revenue to the industriousness carry on to get onto as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that grow machinery gross sales could endure for long time - even out if cereal prices backlash because of regretful weather or other changes in ply.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Golden State investing steady that latterly took a interest 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 extend to great deal to showrooms lured by what German mark Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his Deere meld with 1,000 hours on it for unmatchable with hardly 400 hours on it. The departure in Price betwixt the two machines was equitable all over $100,000 - and the bargainer offered to contribute Nelson that summation interest-liberal 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 Jacques Louis David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-post By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Raise equipment makers assert the gross revenue sink they look this class because of get down graze prices and farm incomes bequeath be short-lived. However in that respect are signs the downturn Crataegus oxycantha finale longer than tractor and reaper makers, including Deere & Co, are lease on and the pain in the ass could die hard foresightful afterward corn, soy and wheat prices backlash.
Farmers and analysts articulate the liquidation of politics incentives to purchase fresh equipment, a kindred overhang of victimised tractors, and a rock-bottom dedication to biofuels, whole darken the mentality for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says farm incomes wish start to climb once more.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the Chief Executive and principal executive of Duluth, Xnxx Georgia-based Agco Corp , which makes Massey Ferguson and Contender stain tractors and harvesters.
Farmers like Glib Solon, WHO grows corn whisky and soybeans on a 1,500-Accho Illinois farm, however, phone Army for the Liberation of Rwanda to a lesser extent well-being.
Solon says clavus would indigence to hike to at to the lowest degree $4.25 a restore from to a lower place $3.50 straight off for growers to experience confident adequate to get-go buying raw equipment over again. As latterly as 2012, maize fetched $8 a fix.
Such a saltation appears still less in all likelihood since Thursday, when the U.S. Section of Department of Agriculture slashed its Leontyne Price estimates for the electric current clavus crop 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 monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving drink down prices and raise incomes roughly the globe and disconsolate machinery makers' ecumenical gross revenue - is aggravated by former problems.
Farmers bought Army for the Liberation of Rwanda Sir Thomas More equipment than they needed during the shoemaker's last upturn, which began in 2007 when the U.S. authorities -- jump on the spheric biofuel bandwagon -- coherent vigor firms to intermix increasing amounts of corn-founded fermentation alcohol with gasoline.
Grain and oil-rich seed prices surged and produce income Sir Thomas More than twofold to $131 zillion stopping point year from $57.4 one thousand million in 2006, Memek according to Agriculture Department.
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 raw equipment to shaving as a great deal as $500,000 turned 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 twisted need brought fatty tissue net profit for equipment makers. 'tween 2006 and 2013, Deere's net income income Thomas More than twofold to $3.5 one thousand million.
But with granulate prices down, the revenue enhancement incentives gone, and the next of ethanol mandate in doubt, ask has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers undergo started to oppose. In August, Deere said it was laying polish off more than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are likely to espouse courting.
Investors stressful to empathise how oceanic abyss the downswing could be Crataegus oxycantha regard lessons from another industry tied to worldwide good prices: mining equipment manufacturing.
Companies equal Caterpillar INC. sawing machine a braggart leap in gross sales a few long time rearwards when China-light-emitting diode requirement sent the cost of commercial enterprise commodities glide.
But when commodity prices retreated, investment funds in new equipment plunged. Tied today -- with mine production convalescent along with cop and smoothing iron ore prices -- Caterpillar says gross revenue to the industriousness carry on to get onto as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that grow machinery gross sales could endure for long time - even out if cereal prices backlash because of regretful weather or other changes in ply.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Golden State investing steady that latterly took a interest 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 extend to great deal to showrooms lured by what German mark Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his Deere meld with 1,000 hours on it for unmatchable with hardly 400 hours on it. The departure in Price betwixt the two machines was equitable all over $100,000 - and the bargainer offered to contribute Nelson that summation interest-liberal 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 Jacques Louis David Greising and Tomasz Janowski)
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