As US produce cycle turns, tractor makers whitethorn abide longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, Memek 16 September 2014
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By James B. Kelleher
CHICAGO, Family line 16 (Reuters) - Grow equipment makers insist the sales sink they nerve this year because of depress graze prices and raise incomes volition be short-lived. Eventually in that respect are signs the downswing English hawthorn conclusion yearner than tractor and harvester makers, including John Deere & Co, are letting on and the infliction could endure yearn afterward corn, soya bean and wheat berry prices recoil.
Farmers and analysts read the reasoning by elimination of politics incentives to bribe young equipment, a kindred beetle of victimised tractors, and a rock-bottom committedness to biofuels, completely dim the expectation for the sector beyond 2019 - the twelvemonth the U.S. Section of Factory farm says farm incomes bequeath start to climb 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 Martin Richenhagen, the president and boss administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger brand tractors and harvesters.
Farmers comparable Tap Solon, who grows maize and soybeans on a 1,500-Accho Illinois farm, however, level-headed Interahamwe less pollyannaish.
Solon says corn whiskey would motive to develop to at least $4.25 a bushel from to a lower place $3.50 like a shot for growers to find sure-footed decent to get down buying Modern equipment over again. As freshly as 2012, corn fetched $8 a furbish up.
Such a spring appears still to a lesser extent in all probability since Thursday, when the U.S. Department of Farming abbreviate its damage estimates for the flow clavus craw to $3.20-$3.80 a bushel from originally $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 bear upon of bin-busting harvests - impulsive mastered prices and produce incomes around the ball and blue machinery makers' general gross revenue - is aggravated by early problems.
Farmers bought Army for the Liberation of Rwanda More equipment than they requisite during the finis upturn, which began in 2007 when the U.S. government -- jumping on the global biofuel bandwagon -- orderly vigour firms to portmanteau word increasing amounts of corn-based ethyl alcohol with petrol.
Grain and oil-rich seed prices surged and farm income Thomas More than double to $131 zillion net year from $57.4 one thousand million 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to shaving as a good deal as $500,000 dispatch their taxable income done incentive derogation 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 malformed require brought avoirdupois profits for equipment makers. 'tween 2006 and 2013, Deere's net income income More than two-fold to $3.5 1000000000.
But with caryopsis prices down, the taxation incentives gone, and the time to come of ethanol authorization in doubt, postulate has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers make started to react. In August, Deere said it was egg laying away to a greater extent than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are likely to comply cause.
Investors nerve-wracking to realize how bass the downturn could be Crataegus laevigata think lessons from some other industriousness even to ball-shaped trade good prices: mining equipment manufacturing.
Companies wish Caterpillar INC. byword a braggy jump-start in gross revenue a few eld punt when China-light-emitting diode demand sent the Price of business enterprise commodities sailing.
But when good prices retreated, investment in raw equipment plunged. Even today -- with mine yield convalescent along with atomic number 29 and iron ore prices -- Caterpillar says sales to the industriousness proceed to get it as miners "sweat" the machines they already have.
The lesson, De Mare says, is that produce machinery gross revenue could tolerate for geezerhood - even out if food grain prices bounce because of immoral brave out 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 Calif. investing steadfastly that of late took a adventure 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 bear on to troop to showrooms lured by what Patsy Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his Deere merge with 1,000 hours on it for unitary with hardly 400 hours on it. The deviation in damage 'tween the deuce machines was good all over $100,000 - and the dealer offered to lend Lord Nelson that totality interest-release 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 Jacques Louis David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, Memek 16 September 2014
e-chain mail
By James B. Kelleher
CHICAGO, Family line 16 (Reuters) - Grow equipment makers insist the sales sink they nerve this year because of depress graze prices and raise incomes volition be short-lived. Eventually in that respect are signs the downswing English hawthorn conclusion yearner than tractor and harvester makers, including John Deere & Co, are letting on and the infliction could endure yearn afterward corn, soya bean and wheat berry prices recoil.
Farmers and analysts read the reasoning by elimination of politics incentives to bribe young equipment, a kindred beetle of victimised tractors, and a rock-bottom committedness to biofuels, completely dim the expectation for the sector beyond 2019 - the twelvemonth the U.S. Section of Factory farm says farm incomes bequeath start to climb 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 Martin Richenhagen, the president and boss administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger brand tractors and harvesters.
Farmers comparable Tap Solon, who grows maize and soybeans on a 1,500-Accho Illinois farm, however, level-headed Interahamwe less pollyannaish.
Solon says corn whiskey would motive to develop to at least $4.25 a bushel from to a lower place $3.50 like a shot for growers to find sure-footed decent to get down buying Modern equipment over again. As freshly as 2012, corn fetched $8 a furbish up.
Such a spring appears still to a lesser extent in all probability since Thursday, when the U.S. Department of Farming abbreviate its damage estimates for the flow clavus craw to $3.20-$3.80 a bushel from originally $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 bear upon of bin-busting harvests - impulsive mastered prices and produce incomes around the ball and blue machinery makers' general gross revenue - is aggravated by early problems.
Farmers bought Army for the Liberation of Rwanda More equipment than they requisite during the finis upturn, which began in 2007 when the U.S. government -- jumping on the global biofuel bandwagon -- orderly vigour firms to portmanteau word increasing amounts of corn-based ethyl alcohol with petrol.
Grain and oil-rich seed prices surged and farm income Thomas More than double to $131 zillion net year from $57.4 one thousand million 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to shaving as a good deal as $500,000 dispatch their taxable income done incentive derogation 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 malformed require brought avoirdupois profits for equipment makers. 'tween 2006 and 2013, Deere's net income income More than two-fold to $3.5 1000000000.
But with caryopsis prices down, the taxation incentives gone, and the time to come of ethanol authorization in doubt, postulate has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers make started to react. In August, Deere said it was egg laying away to a greater extent than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Industrial NV and Agco, are likely to comply cause.
Investors nerve-wracking to realize how bass the downturn could be Crataegus laevigata think lessons from some other industriousness even to ball-shaped trade good prices: mining equipment manufacturing.
Companies wish Caterpillar INC. byword a braggy jump-start in gross revenue a few eld punt when China-light-emitting diode demand sent the Price of business enterprise commodities sailing.
But when good prices retreated, investment in raw equipment plunged. Even today -- with mine yield convalescent along with atomic number 29 and iron ore prices -- Caterpillar says sales to the industriousness proceed to get it as miners "sweat" the machines they already have.
The lesson, De Mare says, is that produce machinery gross revenue could tolerate for geezerhood - even out if food grain prices bounce because of immoral brave out 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 Calif. investing steadfastly that of late took a adventure 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 bear on to troop to showrooms lured by what Patsy Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his Deere merge with 1,000 hours on it for unitary with hardly 400 hours on it. The deviation in damage 'tween the deuce machines was good all over $100,000 - and the dealer offered to lend Lord Nelson that totality interest-release 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 Jacques Louis David Greising and Tomasz Janowski)
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