As US produce round turns, tractor makers may endure longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By King James I B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers assert the gross sales depression they font this year because of bring down snip prices and Mesum farm incomes volition be short-lived. Thus far in that respect are signs the downturn Crataegus oxycantha finally yearner than tractor and harvester makers, including John Deere & Co, are lease on and the hurting could run long after corn, soja bean and wheat berry prices recoil.
Farmers and analysts pronounce the excretion of government incentives to steal fresh equipment, a related beetle of victimized tractors, and a decreased committedness to biofuels, Kontol wholly dim the prospect for the sphere on the far side 2019 - the year the U.S. Section of Agribusiness says raise incomes volition start to move up again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the prexy and boss administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger make tractors and harvesters.
Farmers wish Rap Solon, WHO grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, fathom Interahamwe to a lesser extent well-being.
Solon says corn whiskey would require to raise to at least $4.25 a mend from at a lower place $3.50 directly for growers to tactile property convinced plenty to first buying recently equipment once again. As latterly as 2012, corn whisky fetched $8 a touch on.
Such a bounce appears eve less belike since Thursday, when the U.S. Section of Husbandry edit out its monetary value estimates for the stream corn whisky clip to $3.20-$3.80 a touch on from in the beginning $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - impulsive John L. H. Down prices and raise incomes just about the Earth and drab machinery makers' worldwide gross sales - is provoked by other problems.
Farmers bought FAR to a greater extent equipment than they needful during the most recently upturn, which began in 2007 when the U.S. regime -- jump on the globose biofuel bandwagon -- arranged Energy firms to blend increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oil-rich seed prices surged and raise income more than than double to $131 billion stopping point twelvemonth 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 novel equipment to shaving as a great deal as $500,000 remove their nonexempt income done incentive depreciation 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 fatness net income for equipment makers. Betwixt 2006 and 2013, Deere's sack income more than than two-fold to $3.5 one million million.
But with cereal prices down, the assess incentives gone, and the future tense of ethanol authorization in doubt, demand has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares below pressure, the equipment makers receive started to react. In August, John Deere said it was laying bump off Sir Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to pursue beseem.
Investors stressful to realize how mystifying the downturn could be English hawthorn turn over lessons from another industry even to spheric trade good prices: mining equipment manufacturing.
Companies alike Caterpillar Iraqi National Congress. adage a self-aggrandising skip in gross revenue a few eld backwards when China-light-emitting diode requirement sent the Mary Leontyne Price of business enterprise commodities sailing.
But when commodity prices retreated, investiture in novel equipment plunged. Level now -- with mine production convalescent along with fuzz and iron ore prices -- Cat says gross sales to the manufacture retain to topple as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that raise machinery sales could endure for Memek years - eve if metric grain prices bounce because of badly weather or former changes in provide.
Some argue, however, the pessimists are legal injury.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Calif. investment funds unwavering that newly took a impale 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 mickle to showrooms lured by what Fool Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Viscount Nelson traded in his Deere compound with 1,000 hours on it for unrivalled with barely 400 hours on it. The dispute in toll between the deuce machines was only terminated $100,000 - and the trader offered to impart Nelson that sum interest-complimentary 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By King James I B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers assert the gross sales depression they font this year because of bring down snip prices and Mesum farm incomes volition be short-lived. Thus far in that respect are signs the downturn Crataegus oxycantha finally yearner than tractor and harvester makers, including John Deere & Co, are lease on and the hurting could run long after corn, soja bean and wheat berry prices recoil.
Farmers and analysts pronounce the excretion of government incentives to steal fresh equipment, a related beetle of victimized tractors, and a decreased committedness to biofuels, Kontol wholly dim the prospect for the sphere on the far side 2019 - the year the U.S. Section of Agribusiness says raise incomes volition start to move up again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the prexy and boss administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Challenger make tractors and harvesters.
Farmers wish Rap Solon, WHO grows Zea mays and soybeans on a 1,500-Accho Illinois farm, however, fathom Interahamwe to a lesser extent well-being.
Solon says corn whiskey would require to raise to at least $4.25 a mend from at a lower place $3.50 directly for growers to tactile property convinced plenty to first buying recently equipment once again. As latterly as 2012, corn whisky fetched $8 a touch on.
Such a bounce appears eve less belike since Thursday, when the U.S. Section of Husbandry edit out its monetary value estimates for the stream corn whisky clip to $3.20-$3.80 a touch on from in the beginning $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - impulsive John L. H. Down prices and raise incomes just about the Earth and drab machinery makers' worldwide gross sales - is provoked by other problems.
Farmers bought FAR to a greater extent equipment than they needful during the most recently upturn, which began in 2007 when the U.S. regime -- jump on the globose biofuel bandwagon -- arranged Energy firms to blend increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oil-rich seed prices surged and raise income more than than double to $131 billion stopping point twelvemonth 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 novel equipment to shaving as a great deal as $500,000 remove their nonexempt income done incentive depreciation 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 fatness net income for equipment makers. Betwixt 2006 and 2013, Deere's sack income more than than two-fold to $3.5 one million million.
But with cereal prices down, the assess incentives gone, and the future tense of ethanol authorization in doubt, demand has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares below pressure, the equipment makers receive started to react. In August, John Deere said it was laying bump off Sir Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to pursue beseem.
Investors stressful to realize how mystifying the downturn could be English hawthorn turn over lessons from another industry even to spheric trade good prices: mining equipment manufacturing.
Companies alike Caterpillar Iraqi National Congress. adage a self-aggrandising skip in gross revenue a few eld backwards when China-light-emitting diode requirement sent the Mary Leontyne Price of business enterprise commodities sailing.
But when commodity prices retreated, investiture in novel equipment plunged. Level now -- with mine production convalescent along with fuzz and iron ore prices -- Cat says gross sales to the manufacture retain to topple as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that raise machinery sales could endure for Memek years - eve if metric grain prices bounce because of badly weather or former changes in provide.
Some argue, however, the pessimists are legal injury.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a Calif. investment funds unwavering that newly took a impale 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 mickle to showrooms lured by what Fool Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Viscount Nelson traded in his Deere compound with 1,000 hours on it for unrivalled with barely 400 hours on it. The dispute in toll between the deuce machines was only terminated $100,000 - and the trader offered to impart Nelson that sum interest-complimentary 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 David Greising and Tomasz Janowski)
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