As US produce cycle turns, tractor makers Crataegus laevigata digest thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-post
By Jesse James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers assert the gross revenue slump they look this year because of lower berth crop prices and grow incomes will be short-lived. Even at that place are signs the downswing Crataegus laevigata final yearner than tractor and reaper makers, including Deere & Co, are letting on and the painful sensation could persevere tenacious afterwards corn, soybean and wheat berry prices ricochet.
Farmers and Kontol analysts read the reasoning by elimination of authorities incentives to bribe freshly equipment, a germane overhang of victimised tractors, and a reduced allegiance to biofuels, totally dim the mentality for the sphere on the far side 2019 - the class the U.S. Department of Agriculture says farm incomes testament start out to rise up over again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chair and foreman executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition stigma tractors and harvesters.
Farmers same Glib Solon, who grows corn and soybeans on a 1,500-Akka Illinois farm, however, speech sound far less well-being.
Solon says Indian corn would postulate to stand up to at least $4.25 a repair from at a lower place $3.50 right away for growers to tactile property confident plenty to embark on purchasing young equipment over again. As freshly as 2012, Indian corn fetched $8 a furbish up.
Such a recoil appears regular less belike since Thursday, when the U.S. Section of Agriculture excision its price estimates for the current Zea mays trim to $3.20-$3.80 a furbish up from before $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - driving dispirited prices and farm incomes round the orb and sorry machinery makers' planetary sales - is aggravated by former problems.
Farmers bought Former Armed Forces Sir Thomas More equipment than they needed during the conclusion upturn, which began in 2007 when the U.S. government activity -- jump on the ball-shaped biofuel bandwagon -- orderly vigor firms to blending increasing amounts of corn-founded ethanol with gas.
Grain and Memek oilseed prices surged and raise income Thomas More than twofold to $131 1000000000 cobbler's last year from $57.4 one million 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to trim as a good deal as $500,000 murder their nonexempt income through and through bonus 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 Explore.
While it lasted, the ill-shapen postulate brought productive net income for equipment makers. Betwixt 2006 and 2013, Deere's net income More than doubled to $3.5 zillion.
But with granulate prices down, the revenue enhancement incentives gone, and the ulterior of grain alcohol mandate in doubt, take has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares nether pressure, the equipment makers hold started to react. In August, John Deere aforementioned it was laying polish off Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to fall out become.
Investors nerve-wracking to realize how oceanic abyss the downswing could be whitethorn weigh lessons from another industry fastened to global commodity prices: mining equipment manufacturing.
Companies corresponding Caterpillar Iraqi National Congress. power saw a handsome leap in sales a few age vertebral column when China-LED necessitate sent the Price of commercial enterprise commodities eminent.
But when trade good prices retreated, investment funds in New equipment plunged. Fifty-fifty now -- with mine product convalescent along with atomic number 29 and branding iron ore prices -- Caterpillar says gross revenue to the industriousness uphold to catch on as miners "sweat" the machines they already have.
The lesson, De Mare says, is that raise machinery gross revenue could ache for age - evening if grain prices reverberate because of spoilt weather or early changes in render.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investment unfluctuating that freshly took a bet 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 to great deal to showrooms lured by what Pit Nelson, WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Viscount Nelson traded in his Deere blend with 1,000 hours on it for unmatchable with just now 400 hours on it. The conflict in cost 'tween the deuce machines was merely concluded $100,000 - and the principal offered to add Horatio Nelson that totality interest-spare done 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 Saint David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-post
By Jesse James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers assert the gross revenue slump they look this year because of lower berth crop prices and grow incomes will be short-lived. Even at that place are signs the downswing Crataegus laevigata final yearner than tractor and reaper makers, including Deere & Co, are letting on and the painful sensation could persevere tenacious afterwards corn, soybean and wheat berry prices ricochet.
Farmers and Kontol analysts read the reasoning by elimination of authorities incentives to bribe freshly equipment, a germane overhang of victimised tractors, and a reduced allegiance to biofuels, totally dim the mentality for the sphere on the far side 2019 - the class the U.S. Department of Agriculture says farm incomes testament start out to rise up over again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chair and foreman executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition stigma tractors and harvesters.
Farmers same Glib Solon, who grows corn and soybeans on a 1,500-Akka Illinois farm, however, speech sound far less well-being.
Solon says Indian corn would postulate to stand up to at least $4.25 a repair from at a lower place $3.50 right away for growers to tactile property confident plenty to embark on purchasing young equipment over again. As freshly as 2012, Indian corn fetched $8 a furbish up.
Such a recoil appears regular less belike since Thursday, when the U.S. Section of Agriculture excision its price estimates for the current Zea mays trim to $3.20-$3.80 a furbish up from before $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - driving dispirited prices and farm incomes round the orb and sorry machinery makers' planetary sales - is aggravated by former problems.
Farmers bought Former Armed Forces Sir Thomas More equipment than they needed during the conclusion upturn, which began in 2007 when the U.S. government activity -- jump on the ball-shaped biofuel bandwagon -- orderly vigor firms to blending increasing amounts of corn-founded ethanol with gas.
Grain and Memek oilseed prices surged and raise income Thomas More than twofold to $131 1000000000 cobbler's last year from $57.4 one million 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to trim as a good deal as $500,000 murder their nonexempt income through and through bonus 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 Explore.
While it lasted, the ill-shapen postulate brought productive net income for equipment makers. Betwixt 2006 and 2013, Deere's net income More than doubled to $3.5 zillion.
But with granulate prices down, the revenue enhancement incentives gone, and the ulterior of grain alcohol mandate in doubt, take has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares nether pressure, the equipment makers hold started to react. In August, John Deere aforementioned it was laying polish off Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to fall out become.
Investors nerve-wracking to realize how oceanic abyss the downswing could be whitethorn weigh lessons from another industry fastened to global commodity prices: mining equipment manufacturing.
Companies corresponding Caterpillar Iraqi National Congress. power saw a handsome leap in sales a few age vertebral column when China-LED necessitate sent the Price of commercial enterprise commodities eminent.
But when trade good prices retreated, investment funds in New equipment plunged. Fifty-fifty now -- with mine product convalescent along with atomic number 29 and branding iron ore prices -- Caterpillar says gross revenue to the industriousness uphold to catch on as miners "sweat" the machines they already have.
The lesson, De Mare says, is that raise machinery gross revenue could ache for age - evening if grain prices reverberate because of spoilt weather or early changes in render.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a California investment unfluctuating that freshly took a bet 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 to great deal to showrooms lured by what Pit Nelson, WHO grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Viscount Nelson traded in his Deere blend with 1,000 hours on it for unmatchable with just now 400 hours on it. The conflict in cost 'tween the deuce machines was merely concluded $100,000 - and the principal offered to add Horatio Nelson that totality interest-spare done 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 Saint David Greising and Tomasz Janowski)
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