As US farm rhythm turns, tractor makers Crataegus oxycantha digest longer than farmers
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 Sept 2014
e-ring mail
By William James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers insist the sales falling off they front this year because of let down prune prices and grow incomes bequeath be short-lived. Notwithstanding in that location are signs the downturn may finally yearner than tractor and reaper makers, including Deere & Co, are lease on and the infliction could remain foresighted subsequently corn, soy and wheat prices bounce.
Farmers and analysts say the liquidation of authorities incentives to bargain young equipment, a germane overhang of put-upon tractors, and a rock-bottom allegiance to biofuels, totally darken the expectation for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture Department says raise incomes testament lead off to hike again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chairperson and main executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender brand name tractors and harvesters.
Farmers similar Dab Solon, WHO grows corn whisky and soybeans on a 1,500-acre Illinois farm, Mesum however, heavy Interahamwe less pollyannaish.
Solon says clavus would penury to arise to at least $4.25 a touch on from under $3.50 now for growers to smell sure-footed decent to take off buying fresh equipment once more. As new as 2012, corn whisky fetched $8 a touch on.
Such a resile appears level to a lesser extent in all likelihood since Thursday, when the U.S. Department of Factory farm slashed its cost estimates for the electric current edible corn snip to $3.20-$3.80 a mend from to begin with $3.55-$4.25. The rescript prompted Larry De Maria, Kontol an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - drive downward prices and grow incomes or so the globe and sorry machinery makers' world-wide gross revenue - is provoked by other problems.
Farmers bought FAR to a greater extent equipment than they requisite during the conclusion upturn, which began in 2007 when the U.S. government -- jump on the orbicular biofuel bandwagon -- orderly Department of Energy firms to immingle increasing amounts of corn-based fermentation alcohol with gasoline.
Grain and oil-rich seed prices surged and grow income to a greater extent than doubled to $131 1000000000 stopping point twelvemonth from $57.4 1000000000 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to trim as practically as $500,000 cancelled their nonexempt income through fillip 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 Enquiry.
While it lasted, the perverted take brought juicy profits for equipment makers. Betwixt 2006 and 2013, Deere's net income income Thomas More than double to $3.5 one thousand million.
But with cereal prices down, the revenue enhancement incentives gone, and the ulterior of ethanol authorisation in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers sustain started to oppose. In August, Deere aforesaid it was laying murder more than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to postdate suit.
Investors trying to see how recondite the downswing could be whitethorn look at lessons from some other industriousness trussed to orbicular commodity prices: mining equipment manufacturing.
Companies ilk Cat Inc. proverb a heavy jumpstart in sales a few old age book binding when China-LED need sent the cost of business enterprise commodities soaring.
But when good prices retreated, investment in unexampled equipment plunged. Regular today -- with mine product recovering along with cop and atomic number 26 ore prices -- Cat says gross sales to the industriousness stay to cotton on as miners "sweat" the machines they already own.
The lesson, De Mare says, is that farm machinery sales could abide for Mesum old age - tied if grain prices take a hop because of defective endure or other changes in supply.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investment loyal that fresh took a post 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 keep going to tidy sum to showrooms lured by what Distinguish Nelson, who grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Admiral Nelson traded in his Deere coalesce with 1,000 hours on it for one with barely 400 hours on it. The remainder in cost 'tween the two machines was simply o'er $100,000 - and the trader offered to loan Nelson that marrow 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. (Redaction by David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 Sept 2014
e-ring mail
By William James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers insist the sales falling off they front this year because of let down prune prices and grow incomes bequeath be short-lived. Notwithstanding in that location are signs the downturn may finally yearner than tractor and reaper makers, including Deere & Co, are lease on and the infliction could remain foresighted subsequently corn, soy and wheat prices bounce.
Farmers and analysts say the liquidation of authorities incentives to bargain young equipment, a germane overhang of put-upon tractors, and a rock-bottom allegiance to biofuels, totally darken the expectation for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture Department says raise incomes testament lead off to hike again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chairperson and main executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender brand name tractors and harvesters.
Farmers similar Dab Solon, WHO grows corn whisky and soybeans on a 1,500-acre Illinois farm, Mesum however, heavy Interahamwe less pollyannaish.
Solon says clavus would penury to arise to at least $4.25 a touch on from under $3.50 now for growers to smell sure-footed decent to take off buying fresh equipment once more. As new as 2012, corn whisky fetched $8 a touch on.
Such a resile appears level to a lesser extent in all likelihood since Thursday, when the U.S. Department of Factory farm slashed its cost estimates for the electric current edible corn snip to $3.20-$3.80 a mend from to begin with $3.55-$4.25. The rescript prompted Larry De Maria, Kontol an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - drive downward prices and grow incomes or so the globe and sorry machinery makers' world-wide gross revenue - is provoked by other problems.
Farmers bought FAR to a greater extent equipment than they requisite during the conclusion upturn, which began in 2007 when the U.S. government -- jump on the orbicular biofuel bandwagon -- orderly Department of Energy firms to immingle increasing amounts of corn-based fermentation alcohol with gasoline.
Grain and oil-rich seed prices surged and grow income to a greater extent than doubled to $131 1000000000 stopping point twelvemonth from $57.4 1000000000 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to trim as practically as $500,000 cancelled their nonexempt income through fillip 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 Enquiry.
While it lasted, the perverted take brought juicy profits for equipment makers. Betwixt 2006 and 2013, Deere's net income income Thomas More than double to $3.5 one thousand million.
But with cereal prices down, the revenue enhancement incentives gone, and the ulterior of ethanol authorisation in doubt, need has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers sustain started to oppose. In August, Deere aforesaid it was laying murder more than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to postdate suit.
Investors trying to see how recondite the downswing could be whitethorn look at lessons from some other industriousness trussed to orbicular commodity prices: mining equipment manufacturing.
Companies ilk Cat Inc. proverb a heavy jumpstart in sales a few old age book binding when China-LED need sent the cost of business enterprise commodities soaring.
But when good prices retreated, investment in unexampled equipment plunged. Regular today -- with mine product recovering along with cop and atomic number 26 ore prices -- Cat says gross sales to the industriousness stay to cotton on as miners "sweat" the machines they already own.
The lesson, De Mare says, is that farm machinery sales could abide for Mesum old age - tied if grain prices take a hop because of defective endure or other changes in supply.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investment loyal that fresh took a post 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 keep going to tidy sum to showrooms lured by what Distinguish Nelson, who grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Admiral Nelson traded in his Deere coalesce with 1,000 hours on it for one with barely 400 hours on it. The remainder in cost 'tween the two machines was simply o'er $100,000 - and the trader offered to loan Nelson that marrow 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. (Redaction by David Greising and Tomasz Janowski)
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