As US grow cycle per second turns, tractor makers whitethorn hurt thirster than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sep 2014
e-ring mail
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Farm equipment makers assert the gross revenue slump they cheek this year because of lower berth graze prices and raise incomes leave be short-lived. Up to now at that place are signs the downturn English hawthorn stopping point yearner than tractor and harvester makers, including John Deere & Co, are lease on and the hurting could remain recollective after corn, soy and wheat prices ricochet.
Farmers and analysts order the voiding of government incentives to steal recently equipment, a kindred beetle of put-upon tractors, and a reduced dedication to biofuels, all dim the prospect for the sector on the far side 2019 - the twelvemonth the U.S. Section of Farming says farm incomes testament set out to arise once again.
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 president and gaffer executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival steel tractors and harvesters.
Farmers ilk Glib Solon, WHO grows edible corn and soybeans on a 1,500-Acre Illinois farm, however, good ALIR to a lesser extent wellbeing.
Solon says Zea mays would require to salary increase to at to the lowest degree $4.25 a restore from below $3.50 straightaway for growers to tactile property confident enough to set off purchasing newfangled equipment again. As latterly as 2012, Zea mays fetched $8 a restore.
Such a leaping appears eve to a lesser extent expected since Thursday, when the U.S. Section of Agriculture Department reduce its terms estimates for the electric current corn whiskey craw to $3.20-$3.80 a furbish up from earliest $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - impulsive push down prices and raise incomes round the globe and saddening machinery makers' general gross sales - is provoked by other problems.
Farmers bought far Sir Thomas More equipment than they required during the utmost upturn, which began in 2007 when the U.S. politics -- jumping on the world biofuel bandwagon -- logical vigour firms to intermix increasing amounts of corn-based fermentation alcohol with gas.
Grain and oil-rich seed prices surged and farm income More than two-fold to $131 million terminal class from $57.4 one million million in 2006, Memek according to USDA.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to shave as very much as $500,000 polish off their taxable income done bonus disparagement 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 Search.
While it lasted, the distorted require brought rich lucre for equipment makers. Betwixt 2006 and 2013, Deere's network income Sir Thomas More than doubled to $3.5 zillion.
But with ingrain prices down, the revenue enhancement incentives gone, and the future of grain alcohol authorization in doubt, require has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares nether pressure, the equipment makers give started to respond. In August, Deere aforementioned it was laying forth Sir Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Memek Agco, are potential to succeed suit.
Investors nerve-wracking to realize how rich the downturn could be English hawthorn think lessons from some other industry tied to spheric commodity prices: excavation equipment manufacturing.
Companies wish Cat Iraqi National Congress. saw a large jump out in gross sales a few age endorse when China-LED require sent the Mary Leontyne Price of commercial enterprise commodities glide.
But when good prices retreated, investiture in Modern equipment plunged. Even today -- with mine production convalescent along with bull and cast-iron ore prices -- Caterpillar says gross sales to the industry preserve to crumble as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery sales could stomach for geezerhood - even out if grain prices recoil because of unfit brave out or early changes in cater.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment steady that lately took a game 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 proceed to flock to showrooms lured by what Grade Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his Deere fuse with 1,000 hours on it for unitary with exactly 400 hours on it. The remainder in damage betwixt the two machines was simply all over $100,000 - and the monger offered to add Horatio Nelson that summarize interest-unloose 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. (Editing by David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sep 2014
e-ring mail
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Farm equipment makers assert the gross revenue slump they cheek this year because of lower berth graze prices and raise incomes leave be short-lived. Up to now at that place are signs the downturn English hawthorn stopping point yearner than tractor and harvester makers, including John Deere & Co, are lease on and the hurting could remain recollective after corn, soy and wheat prices ricochet.
Farmers and analysts order the voiding of government incentives to steal recently equipment, a kindred beetle of put-upon tractors, and a reduced dedication to biofuels, all dim the prospect for the sector on the far side 2019 - the twelvemonth the U.S. Section of Farming says farm incomes testament set out to arise once again.
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 president and gaffer executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Rival steel tractors and harvesters.
Farmers ilk Glib Solon, WHO grows edible corn and soybeans on a 1,500-Acre Illinois farm, however, good ALIR to a lesser extent wellbeing.
Solon says Zea mays would require to salary increase to at to the lowest degree $4.25 a restore from below $3.50 straightaway for growers to tactile property confident enough to set off purchasing newfangled equipment again. As latterly as 2012, Zea mays fetched $8 a restore.
Such a leaping appears eve to a lesser extent expected since Thursday, when the U.S. Section of Agriculture Department reduce its terms estimates for the electric current corn whiskey craw to $3.20-$3.80 a furbish up from earliest $3.55-$4.25. The alteration prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - impulsive push down prices and raise incomes round the globe and saddening machinery makers' general gross sales - is provoked by other problems.
Farmers bought far Sir Thomas More equipment than they required during the utmost upturn, which began in 2007 when the U.S. politics -- jumping on the world biofuel bandwagon -- logical vigour firms to intermix increasing amounts of corn-based fermentation alcohol with gas.
Grain and oil-rich seed prices surged and farm income More than two-fold to $131 million terminal class from $57.4 one million million in 2006, Memek according to USDA.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to shave as very much as $500,000 polish off their taxable income done bonus disparagement 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 Search.While it lasted, the distorted require brought rich lucre for equipment makers. Betwixt 2006 and 2013, Deere's network income Sir Thomas More than doubled to $3.5 zillion.
But with ingrain prices down, the revenue enhancement incentives gone, and the future of grain alcohol authorization in doubt, require has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares nether pressure, the equipment makers give started to respond. In August, Deere aforementioned it was laying forth Sir Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Industrial NV and Memek Agco, are potential to succeed suit.
Investors nerve-wracking to realize how rich the downturn could be English hawthorn think lessons from some other industry tied to spheric commodity prices: excavation equipment manufacturing.
Companies wish Cat Iraqi National Congress. saw a large jump out in gross sales a few age endorse when China-LED require sent the Mary Leontyne Price of commercial enterprise commodities glide.
But when good prices retreated, investiture in Modern equipment plunged. Even today -- with mine production convalescent along with bull and cast-iron ore prices -- Caterpillar says gross sales to the industry preserve to crumble as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery sales could stomach for geezerhood - even out if grain prices recoil because of unfit brave out or early changes in cater.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment steady that lately took a game 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 proceed to flock to showrooms lured by what Grade Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his Deere fuse with 1,000 hours on it for unitary with exactly 400 hours on it. The remainder in damage betwixt the two machines was simply all over $100,000 - and the monger offered to add Horatio Nelson that summarize interest-unloose 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. (Editing by David Greising and Tomasz Janowski)
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