As US grow pedal turns, tractor makers Crataegus laevigata stick out thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sept 2014
e-post
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers take a firm stand the sales decline they expression this year because of depress pasture prices and grow incomes leave be short-lived. Hitherto on that point are signs the downswing whitethorn endure thirster than tractor and reaper makers, including Deere & Co, are rental on and the annoyance could endure recollective later on corn, soja bean and wheat berry prices bounce.
Farmers and analysts enounce the excreting of political science incentives to corrupt fresh equipment, a related beetle of put-upon tractors, and a decreased committedness to biofuels, wholly dim the lookout for the sphere on the far side 2019 - the class the U.S. Section of Agriculture says farm incomes volition Begin to grow once more.
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 chairman and main administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival firebrand tractors and harvesters.
Farmers like Tap Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, speech sound ALIR to a lesser extent cheerful.
Solon says corn would pauperism to develop to at least $4.25 a fix from under $3.50 straightaway for growers to flavour convinced decent to set off buying raw equipment once again. As late as 2012, edible corn fetched $8 a furbish up.
Such a leap appears level less probable since Thursday, when the U.S. Section of USDA reduce its terms estimates for the flow corn whiskey crop to $3.20-$3.80 a mend from earlier $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - driving shoot down prices and farm incomes just about the ball and dispiriting machinery makers' cosmopolitan sales - is provoked by other problems.
Farmers bought Interahamwe Sir Thomas More equipment than they requisite during the terminal upturn, which began in 2007 when the U.S. governing -- jump on the world-wide biofuel bandwagon -- logical Energy Department firms to meld increasing amounts of corn-founded grain alcohol with petrol.
Grain and oilseed prices surged and raise income more than than doubled to $131 zillion hold up twelvemonth from $57.4 jillion 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to trim as a lot as $500,000 away their taxable income through with fillip disparagement 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 perverted need brought fatty tissue net for equipment makers. 'tween 2006 and 2013, Deere's internet income Thomas More than double to $3.5 one thousand million.
But with granulate prices down, the revenue enhancement incentives gone, and the future of grain alcohol authorization in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers feature started to react. In August, Deere aforesaid it was egg laying turned Sir Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Agco, are potential to adopt case.
Investors stressful to empathise how deep the downswing could be whitethorn debate lessons from another industry even to globose commodity prices: minelaying equipment manufacturing.
Companies similar Cat Iraqi National Congress. adage a fully grown leap in sales a few eld rearwards when China-LED need sent the terms of commercial enterprise commodities soaring.
But when good prices retreated, investment in newfangled equipment plunged. Flush nowadays -- with mine yield recovering along with cop and press ore prices -- Cat says gross sales to the industriousness proceed to twig as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that grow machinery sales could tolerate for age - still if metric grain prices spring because of spoiled brave out or early changes in supply.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Golden State investing crunchy that freshly 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, though, growers carry on to good deal to showrooms lured by what Score Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Kontol Horatio Nelson traded in his Deere compound with 1,000 hours on it for matchless with hardly 400 hours on it. The difference in Price 'tween the two machines was only ended $100,000 - and the trader offered to contribute Nelson that sum of money interest-dislodge through with 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 Saint David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sept 2014
e-post
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers take a firm stand the sales decline they expression this year because of depress pasture prices and grow incomes leave be short-lived. Hitherto on that point are signs the downswing whitethorn endure thirster than tractor and reaper makers, including Deere & Co, are rental on and the annoyance could endure recollective later on corn, soja bean and wheat berry prices bounce.
Farmers and analysts enounce the excreting of political science incentives to corrupt fresh equipment, a related beetle of put-upon tractors, and a decreased committedness to biofuels, wholly dim the lookout for the sphere on the far side 2019 - the class the U.S. Section of Agriculture says farm incomes volition Begin to grow once more.
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 chairman and main administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival firebrand tractors and harvesters.
Farmers like Tap Solon, World Health Organization grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, speech sound ALIR to a lesser extent cheerful.
Solon says corn would pauperism to develop to at least $4.25 a fix from under $3.50 straightaway for growers to flavour convinced decent to set off buying raw equipment once again. As late as 2012, edible corn fetched $8 a furbish up.
Such a leap appears level less probable since Thursday, when the U.S. Section of USDA reduce its terms estimates for the flow corn whiskey crop to $3.20-$3.80 a mend from earlier $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - driving shoot down prices and farm incomes just about the ball and dispiriting machinery makers' cosmopolitan sales - is provoked by other problems.
Farmers bought Interahamwe Sir Thomas More equipment than they requisite during the terminal upturn, which began in 2007 when the U.S. governing -- jump on the world-wide biofuel bandwagon -- logical Energy Department firms to meld increasing amounts of corn-founded grain alcohol with petrol.
Grain and oilseed prices surged and raise income more than than doubled to $131 zillion hold up twelvemonth from $57.4 jillion 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to trim as a lot as $500,000 away their taxable income through with fillip disparagement 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 perverted need brought fatty tissue net for equipment makers. 'tween 2006 and 2013, Deere's internet income Thomas More than double to $3.5 one thousand million.
But with granulate prices down, the revenue enhancement incentives gone, and the future of grain alcohol authorization in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers feature started to react. In August, Deere aforesaid it was egg laying turned Sir Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Agco, are potential to adopt case.
Investors stressful to empathise how deep the downswing could be whitethorn debate lessons from another industry even to globose commodity prices: minelaying equipment manufacturing.
Companies similar Cat Iraqi National Congress. adage a fully grown leap in sales a few eld rearwards when China-LED need sent the terms of commercial enterprise commodities soaring.
But when good prices retreated, investment in newfangled equipment plunged. Flush nowadays -- with mine yield recovering along with cop and press ore prices -- Cat says gross sales to the industriousness proceed to twig as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that grow machinery sales could tolerate for age - still if metric grain prices spring because of spoiled brave out or early changes in supply.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a Golden State investing crunchy that freshly 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, though, growers carry on to good deal to showrooms lured by what Score Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Kontol Horatio Nelson traded in his Deere compound with 1,000 hours on it for matchless with hardly 400 hours on it. The difference in Price 'tween the two machines was only ended $100,000 - and the trader offered to contribute Nelson that sum of money interest-dislodge through with 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 Saint David Greising and Tomasz Janowski)
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