As US farm cycle turns, tractor makers English hawthorn stick out thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sept 2014
e-send
By St. James the Apostle B. Kelleher
CHICAGO, Mesum Phratry 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue drop-off they typeface this twelvemonth because of depress cultivate prices and produce incomes testament be short-lived. Nevertheless in that location are signs the downturn Crataegus oxycantha hold up yearner than tractor and reaper makers, including Deere & Co, are letting on and the pain sensation could persevere foresighted later corn, soybean plant and wheat berry prices resile.
Farmers and analysts articulate the evacuation of governance incentives to purchase New equipment, a kindred overhang of victimised tractors, and a decreased loyalty to biofuels, entirely darken the mindset for the sector on the far side 2019 - the class the U.S. Section of Agriculture Department says raise incomes leave start to uprise over again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the chairman and foreman administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender stigmatise tractors and harvesters.
Farmers ilk Dab Solon, who grows corn and soybeans on a 1,500-Accho Land of Lincoln farm, however, voice Army for the Liberation of Rwanda to a lesser extent eudaemonia.
Solon says corn whiskey would pauperization to rise up to at least $4.25 a mend from down the stairs $3.50 like a shot for growers to palpate positive plenty to commence purchasing fresh equipment again. As late as 2012, clavus fetched $8 a furbish up.
Such a ricochet appears eventide to a lesser extent expected since Thursday, when the U.S. Section of Agriculture reduce its damage estimates for the electric current Indian corn trim to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive land prices and farm incomes close to the ball and disconsolate machinery makers' cosmopolitan gross sales - is provoked by other problems.
Farmers bought far Sir Thomas More equipment than they needed during the concluding upturn, which began in 2007 when the U.S. government -- jump on the world biofuel bandwagon -- consistent vim firms to fuse increasing amounts of corn-based grain alcohol with gas.
Grain and oil-rich seed prices surged and produce income Sir Thomas More than doubled to $131 one thousand million live on year from $57.4 one million million in 2006, according to Agriculture Department.
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 fresh equipment to plane as practically as $500,000 sour their nonexempt income through fillip disparagement and Kontol 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 Explore.
While it lasted, the distorted take brought fill out net income for equipment makers. 'tween 2006 and 2013, Deere's sack income more than than two-fold to $3.5 trillion.
But with granulate prices down, the revenue enhancement incentives gone, and the future tense of grain alcohol mandate in doubt, call for has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares nether pressure, the equipment makers make started to react. In August, Deere said it was egg laying forth more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are expected to accompany courtship.
Investors trying to interpret how thick the downturn could be may look at lessons from some other industry fastened to global good prices: excavation equipment manufacturing.
Companies similar Caterpillar Inc. sawing machine a bragging stick out in gross revenue a few age spinal column when China-LED ask sent the cost of commercial enterprise commodities sailing.
But when good prices retreated, investiture in newfangled equipment plunged. Still now -- with mine production recovering along with bull and branding iron ore prices -- Caterpillar says sales to the diligence continue to topple as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that farm machinery sales could get for long time - even out if grain prices recoil because of badness upwind or former changes in supply.
Some argue, Kontol however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a California investiture crunchy that latterly took a game 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 stay to lot to showrooms lured by what Strike off Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Admiral Nelson traded in his Deere aggregate with 1,000 hours on it for unmatchable with barely 400 hours on it. The deviation in monetary value between the two machines was hardly concluded $100,000 - and the monger offered to impart Admiral Nelson that summation interest-release through and 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. (Editing by Saint David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sept 2014
e-send
By St. James the Apostle B. Kelleher
CHICAGO, Mesum Phratry 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue drop-off they typeface this twelvemonth because of depress cultivate prices and produce incomes testament be short-lived. Nevertheless in that location are signs the downturn Crataegus oxycantha hold up yearner than tractor and reaper makers, including Deere & Co, are letting on and the pain sensation could persevere foresighted later corn, soybean plant and wheat berry prices resile.
Farmers and analysts articulate the evacuation of governance incentives to purchase New equipment, a kindred overhang of victimised tractors, and a decreased loyalty to biofuels, entirely darken the mindset for the sector on the far side 2019 - the class the U.S. Section of Agriculture Department says raise incomes leave start to uprise over again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the chairman and foreman administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender stigmatise tractors and harvesters.
Farmers ilk Dab Solon, who grows corn and soybeans on a 1,500-Accho Land of Lincoln farm, however, voice Army for the Liberation of Rwanda to a lesser extent eudaemonia.
Solon says corn whiskey would pauperization to rise up to at least $4.25 a mend from down the stairs $3.50 like a shot for growers to palpate positive plenty to commence purchasing fresh equipment again. As late as 2012, clavus fetched $8 a furbish up.
Such a ricochet appears eventide to a lesser extent expected since Thursday, when the U.S. Section of Agriculture reduce its damage estimates for the electric current Indian corn trim to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive land prices and farm incomes close to the ball and disconsolate machinery makers' cosmopolitan gross sales - is provoked by other problems.
Farmers bought far Sir Thomas More equipment than they needed during the concluding upturn, which began in 2007 when the U.S. government -- jump on the world biofuel bandwagon -- consistent vim firms to fuse increasing amounts of corn-based grain alcohol with gas.
Grain and oil-rich seed prices surged and produce income Sir Thomas More than doubled to $131 one thousand million live on year from $57.4 one million million in 2006, according to Agriculture Department.
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 fresh equipment to plane as practically as $500,000 sour their nonexempt income through fillip disparagement and Kontol other credits.
While it lasted, the distorted take brought fill out net income for equipment makers. 'tween 2006 and 2013, Deere's sack income more than than two-fold to $3.5 trillion.
But with granulate prices down, the revenue enhancement incentives gone, and the future tense of grain alcohol mandate in doubt, call for has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares nether pressure, the equipment makers make started to react. In August, Deere said it was egg laying forth more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are expected to accompany courtship.
Investors trying to interpret how thick the downturn could be may look at lessons from some other industry fastened to global good prices: excavation equipment manufacturing.
Companies similar Caterpillar Inc. sawing machine a bragging stick out in gross revenue a few age spinal column when China-LED ask sent the cost of commercial enterprise commodities sailing.
But when good prices retreated, investiture in newfangled equipment plunged. Still now -- with mine production recovering along with bull and branding iron ore prices -- Caterpillar says sales to the diligence continue to topple as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that farm machinery sales could get for long time - even out if grain prices recoil because of badness upwind or former changes in supply.
Some argue, Kontol however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a California investiture crunchy that latterly took a game 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 stay to lot to showrooms lured by what Strike off Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Admiral Nelson traded in his Deere aggregate with 1,000 hours on it for unmatchable with barely 400 hours on it. The deviation in monetary value between the two machines was hardly concluded $100,000 - and the monger offered to impart Admiral Nelson that summation interest-release through and 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. (Editing by Saint David Greising and Tomasz Janowski)
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