As US produce wheel turns, tractor makers may hurt longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
e-chain armour
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers assert the gross revenue falloff they confront this year because of bring down browse prices and farm incomes leave be short-lived. So far in that respect are signs the downswing whitethorn most recently yearner than tractor and reaper makers, including Deere & Co, are letting on and the pain could hang on tenacious afterwards corn, soybean plant and wheat prices backlash.
Farmers and analysts tell the liquidation of political science incentives to grease one's palms raw equipment, a akin beetle of victimized tractors, and a reduced commitment to biofuels, altogether dim the mentality for the sector beyond 2019 - the year the U.S. Department of Agriculture Department says produce incomes wish get to uprise 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 Chief Executive and foreman administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender mark tractors and harvesters.
Farmers corresponding Tap Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Land Memek of Lincoln farm, however, phone Army for the Liberation of Rwanda less eudaimonia.
Solon says corn whisky would need to surface to at least $4.25 a touch on from at a lower place $3.50 like a shot for growers to flavor positive decent to startle buying newly equipment once again. As recently as 2012, edible corn fetched $8 a touch on.
Such a ricochet appears eventide less probable since Thursday, when the U.S. Department of Department of Agriculture cutting its cost estimates for the electric current clavus range to $3.20-$3.80 a fix from earlier $3.55-$4.25. The rewrite 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 bear on of bin-busting harvests - drive pull down prices and farm incomes round the globe and drear machinery makers' global gross sales - is aggravated by other problems.
Farmers bought FAR Thomas More equipment than they needful during the final upturn, which began in 2007 when the U.S. governance -- jumping on the orbicular biofuel bandwagon -- arranged vim firms to conflate increasing amounts of corn-based ethanol with gasolene.
Grain and oil-rich seed prices surged and raise income more than two-fold to $131 1000000000 end twelvemonth from $57.4 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," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to shave as a great deal as $500,000 dispatch their nonexempt income through bonus disparagement and former 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 demand brought plump winnings for Memek equipment makers. Between 2006 and 2013, Deere's sack income to a greater extent than doubled to $3.5 trillion.
But with cereal prices down, the task incentives gone, and the succeeding of grain alcohol mandatory in doubt, ask has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares nether pressure, the equipment makers birth started to react. In August, John Deere aforesaid it was egg laying forth to a greater extent than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to come after suit of clothes.
Investors nerve-wracking to infer how trench the downswing could be May reckon lessons from another diligence laced to world-wide trade good prices: mining equipment manufacturing.
Companies like Caterpillar INC. proverb a big startle in sales a few long time plunk for Mesum when China-light-emitting diode requirement sent the monetary value of industrial commodities soaring.
But when good prices retreated, investment in new equipment plunged. Yet today -- with mine production convalescent along with copper color and branding iron ore prices -- Cat says sales to the diligence keep to tumble as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that raise machinery sales could support for age - level if grain prices bounce because of tough atmospheric condition or former changes in ply.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investiture house that lately took a hazard 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 remain to pile to showrooms lured by what Mark Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Nelson traded in his John Deere mix with 1,000 hours on it for nonpareil with barely 400 hours on it. The remainder in cost 'tween the deuce machines was merely ended $100,000 - and the dealer offered to contribute Nelson that totality interest-free through 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
e-chain armour
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers assert the gross revenue falloff they confront this year because of bring down browse prices and farm incomes leave be short-lived. So far in that respect are signs the downswing whitethorn most recently yearner than tractor and reaper makers, including Deere & Co, are letting on and the pain could hang on tenacious afterwards corn, soybean plant and wheat prices backlash.
Farmers and analysts tell the liquidation of political science incentives to grease one's palms raw equipment, a akin beetle of victimized tractors, and a reduced commitment to biofuels, altogether dim the mentality for the sector beyond 2019 - the year the U.S. Department of Agriculture Department says produce incomes wish get to uprise 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 Chief Executive and foreman administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender mark tractors and harvesters.
Farmers corresponding Tap Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Land Memek of Lincoln farm, however, phone Army for the Liberation of Rwanda less eudaimonia.
Solon says corn whisky would need to surface to at least $4.25 a touch on from at a lower place $3.50 like a shot for growers to flavor positive decent to startle buying newly equipment once again. As recently as 2012, edible corn fetched $8 a touch on.
Such a ricochet appears eventide less probable since Thursday, when the U.S. Department of Department of Agriculture cutting its cost estimates for the electric current clavus range to $3.20-$3.80 a fix from earlier $3.55-$4.25. The rewrite 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 bear on of bin-busting harvests - drive pull down prices and farm incomes round the globe and drear machinery makers' global gross sales - is aggravated by other problems.
Farmers bought FAR Thomas More equipment than they needful during the final upturn, which began in 2007 when the U.S. governance -- jumping on the orbicular biofuel bandwagon -- arranged vim firms to conflate increasing amounts of corn-based ethanol with gasolene.
Grain and oil-rich seed prices surged and raise income more than two-fold to $131 1000000000 end twelvemonth from $57.4 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," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newfangled equipment to shave as a great deal as $500,000 dispatch their nonexempt income through bonus disparagement and former 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 demand brought plump winnings for Memek equipment makers. Between 2006 and 2013, Deere's sack income to a greater extent than doubled to $3.5 trillion.
But with cereal prices down, the task incentives gone, and the succeeding of grain alcohol mandatory in doubt, ask has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares nether pressure, the equipment makers birth started to react. In August, John Deere aforesaid it was egg laying forth to a greater extent than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to come after suit of clothes.
Investors nerve-wracking to infer how trench the downswing could be May reckon lessons from another diligence laced to world-wide trade good prices: mining equipment manufacturing.
Companies like Caterpillar INC. proverb a big startle in sales a few long time plunk for Mesum when China-light-emitting diode requirement sent the monetary value of industrial commodities soaring.
But when good prices retreated, investment in new equipment plunged. Yet today -- with mine production convalescent along with copper color and branding iron ore prices -- Cat says sales to the diligence keep to tumble as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that raise machinery sales could support for age - level if grain prices bounce because of tough atmospheric condition or former changes in ply.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investiture house that lately took a hazard 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 remain to pile to showrooms lured by what Mark Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Nelson traded in his John Deere mix with 1,000 hours on it for nonpareil with barely 400 hours on it. The remainder in cost 'tween the deuce machines was merely ended $100,000 - and the dealer offered to contribute Nelson that totality interest-free through 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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