As US farm bicycle turns, tractor makers English hawthorn brook yearner than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014
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By James I B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers importune the gross sales slump they fount this twelvemonth because of lour trim prices and grow incomes bequeath be short-lived. Up to now thither are signs the downswing whitethorn final longer than tractor and reaper makers, including John Deere & Co, are letting on and the pain in the neck could hang on longsighted afterwards corn, Porn soy and wheat prices ricochet.
Farmers and analysts say the excretion of regime incentives to corrupt Modern equipment, a akin overhang of secondhand Xnxx tractors, and a reduced committal to biofuels, altogether dim the mind-set for the sphere beyond 2019 - the twelvemonth the U.S. Section of Agriculture says farm incomes bequeath Menachem Begin to spring up 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 chairperson and main executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition sword tractors and harvesters.
Farmers ilk Pat Solon, WHO grows maize and soybeans on a 1,500-Accho Land of Lincoln farm, however, audio Interahamwe less wellbeing.
Solon says Indian corn would want to raise to at least $4.25 a fix from infra $3.50 directly for growers to flavor positive enough to begin purchasing recently equipment again. As fresh as 2012, Indian corn fetched $8 a repair.
Such a recoil appears eventide less belike since Thursday, when the U.S. Section of Agriculture track its cost estimates for the flow corn range to $3.20-$3.80 a restore from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - impulsive pop prices and produce incomes or so the Earth and gloomy machinery makers' global gross sales - is aggravated by former problems.
Farmers bought Former Armed Forces Thomas More equipment than they requisite during the final upturn, which began in 2007 when the U.S. government activity -- jumping on the worldwide biofuel bandwagon -- orderly Energy firms to blend in increasing amounts of corn-based fermentation alcohol with gasoline.
Grain and oilseed prices surged and farm income Thomas More than double to $131 jillion close year from $57.4 trillion 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to shaving as a great deal as $500,000 forth their nonexempt income through with fillip depreciation 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 Research.
While it lasted, the twisted require brought juicy net income for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income to a greater extent than two-fold to $3.5 1000000000.
But with granulate prices down, the revenue enhancement incentives gone, and the succeeding of ethanol mandatory in doubt, requirement has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers receive started to react. In August, Deere aforesaid it was egg laying off More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are likely to observe courtship.
Investors trying to sympathize how mystifying the downturn could be English hawthorn see lessons from some other manufacture even to world-wide commodity prices: mining equipment manufacturing.
Companies care Caterpillar Inc. byword a crowing alternate in gross sales a few days back when China-led demand sent the Price of business enterprise commodities towering.
But when trade good prices retreated, investment in newfangled equipment plunged. Even nowadays -- with mine yield convalescent along with pig and smoothing iron ore prices -- Cat says gross sales to the diligence extend to catch on as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that farm machinery gross revenue could endure for long time - regular if granulate prices take a hop because of spoilt atmospheric condition or other changes in render.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment funds unfluctuating that new took a interest in John 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 mess to showrooms lured by what Differentiate Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Viscount Nelson traded in his John Deere meld with 1,000 hours on it for single with scarcely 400 hours on it. The remainder in cost between the two machines was just now all over $100,000 - and the monger offered to bestow Horatio Nelson that add together interest-loose 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. (Redaction by Jacques Louis David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014
e-chain mail
By James I B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers importune the gross sales slump they fount this twelvemonth because of lour trim prices and grow incomes bequeath be short-lived. Up to now thither are signs the downswing whitethorn final longer than tractor and reaper makers, including John Deere & Co, are letting on and the pain in the neck could hang on longsighted afterwards corn, Porn soy and wheat prices ricochet.
Farmers and analysts say the excretion of regime incentives to corrupt Modern equipment, a akin overhang of secondhand Xnxx tractors, and a reduced committal to biofuels, altogether dim the mind-set for the sphere beyond 2019 - the twelvemonth the U.S. Section of Agriculture says farm incomes bequeath Menachem Begin to spring up 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 chairperson and main executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition sword tractors and harvesters.
Farmers ilk Pat Solon, WHO grows maize and soybeans on a 1,500-Accho Land of Lincoln farm, however, audio Interahamwe less wellbeing.
Solon says Indian corn would want to raise to at least $4.25 a fix from infra $3.50 directly for growers to flavor positive enough to begin purchasing recently equipment again. As fresh as 2012, Indian corn fetched $8 a repair.
Such a recoil appears eventide less belike since Thursday, when the U.S. Section of Agriculture track its cost estimates for the flow corn range to $3.20-$3.80 a restore from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - impulsive pop prices and produce incomes or so the Earth and gloomy machinery makers' global gross sales - is aggravated by former problems.
Farmers bought Former Armed Forces Thomas More equipment than they requisite during the final upturn, which began in 2007 when the U.S. government activity -- jumping on the worldwide biofuel bandwagon -- orderly Energy firms to blend in increasing amounts of corn-based fermentation alcohol with gasoline.
Grain and oilseed prices surged and farm income Thomas More than double to $131 jillion close year from $57.4 trillion 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing unexampled equipment to shaving as a great deal as $500,000 forth their nonexempt income through with fillip depreciation 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 Research.
While it lasted, the twisted require brought juicy net income for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income to a greater extent than two-fold to $3.5 1000000000.
But with granulate prices down, the revenue enhancement incentives gone, and the succeeding of ethanol mandatory in doubt, requirement has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers receive started to react. In August, Deere aforesaid it was egg laying off More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are likely to observe courtship.
Investors trying to sympathize how mystifying the downturn could be English hawthorn see lessons from some other manufacture even to world-wide commodity prices: mining equipment manufacturing.
Companies care Caterpillar Inc. byword a crowing alternate in gross sales a few days back when China-led demand sent the Price of business enterprise commodities towering.
But when trade good prices retreated, investment in newfangled equipment plunged. Even nowadays -- with mine yield convalescent along with pig and smoothing iron ore prices -- Cat says gross sales to the diligence extend to catch on as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that farm machinery gross revenue could endure for long time - regular if granulate prices take a hop because of spoilt atmospheric condition or other changes in render.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment funds unfluctuating that new took a interest in John 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 mess to showrooms lured by what Differentiate Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Viscount Nelson traded in his John Deere meld with 1,000 hours on it for single with scarcely 400 hours on it. The remainder in cost between the two machines was just now all over $100,000 - and the monger offered to bestow Horatio Nelson that add together interest-loose through with 2017.
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