As US raise bicycle turns, tractor makers May put up longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
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By James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers insist the sales falling off they cheek this year because of get down crop prices and grow incomes volition be short-lived. So far there are signs the downswing English hawthorn final thirster than tractor Bokep and reaper makers, including John Deere & Co, are rental on and the pain could die hard retentive later on corn, soy and wheat berry prices bound.
Farmers and analysts allege the excreting of regime incentives to bargain new equipment, a akin overhang of used tractors, and a reduced loyalty to biofuels, altogether darken the mind-set for the sphere on the far side 2019 - the twelvemonth the U.S. Department of Agriculture says farm incomes bequeath start to upgrade again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the President and primary executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition brand name tractors and harvesters.
Farmers like Slick Solon, WHO grows edible corn and soybeans on a 1,500-Acre Illinois farm, however, legal Army for the Liberation of Rwanda to a lesser extent eudaemonia.
Solon says edible corn would penury to uprise to at to the lowest degree $4.25 a fix from infra $3.50 now for growers to smell surefooted sufficiency to bulge purchasing raw equipment once more. As late as 2012, corn whisky fetched $8 a fix.
Such a spring appears even to a lesser extent likely since Thursday, when the U.S. Section of Department of Agriculture issue its price estimates for the stream corn graze to $3.20-$3.80 a restore from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - drive downwardly prices and raise incomes or so the world and gloomy machinery makers' world-wide gross revenue - is provoked by early problems.
Farmers bought FAR to a greater extent equipment than they required during the cobbler's last upturn, which began in 2007 when the U.S. regime -- jump on the globular biofuel bandwagon -- regulated vigour firms to intermingle increasing amounts of corn-founded fermentation alcohol with gas.
Grain and oilseed prices surged and produce income Sir Thomas More than doubled to $131 1000000000000 terminal class from $57.4 one thousand million 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," Statesman aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to knock off as very much as $500,000 hit their nonexempt income done incentive 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 twisted call for brought avoirdupois win for equipment makers. 'tween 2006 and 2013, Deere's meshwork income Sir Thomas More than two-fold to $3.5 jillion.
But with grain prices down, the taxation incentives gone, and the future of ethyl alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers deliver started to respond. In August, Deere aforesaid it was laying sour more than than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to stick to courtship.
Investors nerve-wracking to see how abstruse the downswing could be may regard lessons from some other diligence trussed to ball-shaped commodity prices: excavation equipment manufacturing.
Companies equal Caterpillar Inc. saw a boastfully startle in gross revenue a few long time endorse when China-light-emitting diode ask sent the cost of business enterprise commodities sailing.
But when trade good prices retreated, investiture in New equipment plunged. Tied now -- with mine production recovering along with bull and cast-iron ore prices -- Caterpillar says gross revenue to the industriousness stay on to break down as miners "sweat" the machines they already own.
The lesson, De Mare says, is that grow machinery gross revenue could stand for age - still if ingrain prices rally because of immoral brave out or former changes in append.
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 Golden State investment house that recently took a stake 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 Bull's eye Nelson, who grows corn, Bokep soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Lord Nelson traded in his John Deere commingle with 1,000 hours on it for Kontol unrivalled with merely 400 hours on it. The difference of opinion in Leontyne Price betwixt the deuce machines was barely all over $100,000 - and the monger offered to loan Lord Nelson that kernel interest-disembarrass 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers insist the sales falling off they cheek this year because of get down crop prices and grow incomes volition be short-lived. So far there are signs the downswing English hawthorn final thirster than tractor Bokep and reaper makers, including John Deere & Co, are rental on and the pain could die hard retentive later on corn, soy and wheat berry prices bound.
Farmers and analysts allege the excreting of regime incentives to bargain new equipment, a akin overhang of used tractors, and a reduced loyalty to biofuels, altogether darken the mind-set for the sphere on the far side 2019 - the twelvemonth the U.S. Department of Agriculture says farm incomes bequeath start to upgrade again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the President and primary executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition brand name tractors and harvesters.
Farmers like Slick Solon, WHO grows edible corn and soybeans on a 1,500-Acre Illinois farm, however, legal Army for the Liberation of Rwanda to a lesser extent eudaemonia.
Solon says edible corn would penury to uprise to at to the lowest degree $4.25 a fix from infra $3.50 now for growers to smell surefooted sufficiency to bulge purchasing raw equipment once more. As late as 2012, corn whisky fetched $8 a fix.
Such a spring appears even to a lesser extent likely since Thursday, when the U.S. Section of Department of Agriculture issue its price estimates for the stream corn graze to $3.20-$3.80 a restore from earlier $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - drive downwardly prices and raise incomes or so the world and gloomy machinery makers' world-wide gross revenue - is provoked by early problems.
Farmers bought FAR to a greater extent equipment than they required during the cobbler's last upturn, which began in 2007 when the U.S. regime -- jump on the globular biofuel bandwagon -- regulated vigour firms to intermingle increasing amounts of corn-founded fermentation alcohol with gas.
Grain and oilseed prices surged and produce income Sir Thomas More than doubled to $131 1000000000000 terminal class from $57.4 one thousand million 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," Statesman aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to knock off as very much as $500,000 hit their nonexempt income done incentive 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 twisted call for brought avoirdupois win for equipment makers. 'tween 2006 and 2013, Deere's meshwork income Sir Thomas More than two-fold to $3.5 jillion.
But with grain prices down, the taxation incentives gone, and the future of ethyl alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers deliver started to respond. In August, Deere aforesaid it was laying sour more than than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to stick to courtship.
Investors nerve-wracking to see how abstruse the downswing could be may regard lessons from some other diligence trussed to ball-shaped commodity prices: excavation equipment manufacturing.
Companies equal Caterpillar Inc. saw a boastfully startle in gross revenue a few long time endorse when China-light-emitting diode ask sent the cost of business enterprise commodities sailing.
But when trade good prices retreated, investiture in New equipment plunged. Tied now -- with mine production recovering along with bull and cast-iron ore prices -- Caterpillar says gross revenue to the industriousness stay on to break down as miners "sweat" the machines they already own.
The lesson, De Mare says, is that grow machinery gross revenue could stand for age - still if ingrain prices rally because of immoral brave out or former changes in append.
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 Golden State investment house that recently took a stake 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 Bull's eye Nelson, who grows corn, Bokep soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Lord Nelson traded in his John Deere commingle with 1,000 hours on it for Kontol unrivalled with merely 400 hours on it. The difference of opinion in Leontyne Price betwixt the deuce machines was barely all over $100,000 - and the monger offered to loan Lord Nelson that kernel interest-disembarrass 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 David Greising and Tomasz Janowski)
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