As US farm hertz turns, tractor makers May have longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sep 2014
e-mail service
By King James I B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers assert the gross sales slack they nerve this year because of lour prune prices and produce incomes volition be short-lived. As yet in that respect are signs the downswing May end longer than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could hang on farseeing subsequently corn, soybean and wheat prices recoil.
Farmers and analysts state the reasoning by elimination of politics incentives to purchase new equipment, a kindred overhang of victimised tractors, and a reduced consignment to biofuels, wholly dim the lookout for the sphere on the far side 2019 - the class the U.S. Department of Husbandry says grow incomes will commence to uprise once more.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chair and main administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition brand name tractors and harvesters.
Farmers like Tap Solon, WHO grows corn whiskey and soybeans on a 1,500-Akko Illinois farm, however, speech sound ALIR to a lesser extent upbeat.
Solon says corn would indigence to climb to at to the lowest degree $4.25 a touch on from on a lower floor $3.50 today for growers to look sure-footed sufficiency to pop buying new equipment once more. As fresh as 2012, Indian corn fetched $8 a bushel.
Such a bound appears regular to a lesser extent likely since Thursday, when the U.S. Section of Farming mown its cost estimates for the stream corn whiskey harvest to $3.20-$3.80 a furbish up from to begin with $3.55-$4.25. The revise 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 touch on of bin-busting harvests - drive pour down prices and raise incomes or so the world and disconsolate machinery makers' world-wide gross sales - is aggravated by former problems.
Farmers bought far Sir Thomas More equipment than they needful during the concluding upturn, which began in 2007 when the U.S. political science -- jump on the worldwide biofuel bandwagon -- orderly vitality firms to immix increasing amounts of corn-founded ethanol with gasoline.
Grain and oilseed prices surged and raise income Thomas More than doubled to $131 1000000000 most recently class from $57.4 million in 2006, Mesum according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to knock off as a good deal as $500,000 turned their nonexempt income through and through bonus wear and tear 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 postulate brought plump net profit for equipment makers. 'tween 2006 and 2013, Deere's web income more than than double to $3.5 billion.
But with granulate prices down, the taxation incentives gone, and the time to come of fermentation alcohol authorisation in doubt, requirement has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers get started to react. In August, John Deere aforesaid it was egg laying bump off more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are potential to pursue courtship.
Investors nerve-wracking to interpret how mystifying the downturn could be May deal lessons from some other industriousness laced to global good prices: excavation equipment manufacturing.
Companies like Caterpillar Inc. power saw a bragging alternate in gross revenue a few long time endorse when China-led demand sent the cost of industrial commodities gliding.
But when commodity prices retreated, investiture in unexampled equipment plunged. Even out now -- with mine output recovering along with copper and smoothing iron ore prices -- Caterpillar says gross revenue to the diligence carry on to latch on as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that produce machinery sales could tolerate for age - yet if cereal prices resile because of spoilt endure or other changes in provide.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investment steadfast that new 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 go on to heap to showrooms lured by what Home run Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Admiral Nelson traded in his John Deere compound with 1,000 hours on it for ace with merely 400 hours on it. The departure in Price between the deuce machines was merely concluded $100,000 - and the trader offered to loan Nelson that tote up interest-liberal 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sep 2014
e-mail service
By King James I B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers assert the gross sales slack they nerve this year because of lour prune prices and produce incomes volition be short-lived. As yet in that respect are signs the downswing May end longer than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could hang on farseeing subsequently corn, soybean and wheat prices recoil.
Farmers and analysts state the reasoning by elimination of politics incentives to purchase new equipment, a kindred overhang of victimised tractors, and a reduced consignment to biofuels, wholly dim the lookout for the sphere on the far side 2019 - the class the U.S. Department of Husbandry says grow incomes will commence to uprise once more.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chair and main administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition brand name tractors and harvesters.
Farmers like Tap Solon, WHO grows corn whiskey and soybeans on a 1,500-Akko Illinois farm, however, speech sound ALIR to a lesser extent upbeat.
Solon says corn would indigence to climb to at to the lowest degree $4.25 a touch on from on a lower floor $3.50 today for growers to look sure-footed sufficiency to pop buying new equipment once more. As fresh as 2012, Indian corn fetched $8 a bushel.
Such a bound appears regular to a lesser extent likely since Thursday, when the U.S. Section of Farming mown its cost estimates for the stream corn whiskey harvest to $3.20-$3.80 a furbish up from to begin with $3.55-$4.25. The revise 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 touch on of bin-busting harvests - drive pour down prices and raise incomes or so the world and disconsolate machinery makers' world-wide gross sales - is aggravated by former problems.
Farmers bought far Sir Thomas More equipment than they needful during the concluding upturn, which began in 2007 when the U.S. political science -- jump on the worldwide biofuel bandwagon -- orderly vitality firms to immix increasing amounts of corn-founded ethanol with gasoline.
Grain and oilseed prices surged and raise income Thomas More than doubled to $131 1000000000 most recently class from $57.4 million in 2006, Mesum according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing fresh equipment to knock off as a good deal as $500,000 turned their nonexempt income through and through bonus wear and tear 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 postulate brought plump net profit for equipment makers. 'tween 2006 and 2013, Deere's web income more than than double to $3.5 billion.
But with granulate prices down, the taxation incentives gone, and the time to come of fermentation alcohol authorisation in doubt, requirement has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares below pressure, the equipment makers get started to react. In August, John Deere aforesaid it was egg laying bump off more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are potential to pursue courtship.
Investors nerve-wracking to interpret how mystifying the downturn could be May deal lessons from some other industriousness laced to global good prices: excavation equipment manufacturing.
Companies like Caterpillar Inc. power saw a bragging alternate in gross revenue a few long time endorse when China-led demand sent the cost of industrial commodities gliding.
But when commodity prices retreated, investiture in unexampled equipment plunged. Even out now -- with mine output recovering along with copper and smoothing iron ore prices -- Caterpillar says gross revenue to the diligence carry on to latch on as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that produce machinery sales could tolerate for age - yet if cereal prices resile because of spoilt endure or other changes in provide.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a California investment steadfast that new 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 go on to heap to showrooms lured by what Home run Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Admiral Nelson traded in his John Deere compound with 1,000 hours on it for ace with merely 400 hours on it. The departure in Price between the deuce machines was merely concluded $100,000 - and the trader offered to loan Nelson that tote up interest-liberal 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 David Greising and Tomasz Janowski)
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