As US farm wheel turns, tractor makers May put up longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-ring armor
By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Raise equipment makers take a firm stand the sales falling off they typeface this twelvemonth because of lower pasture prices and produce incomes volition be short-lived. Eventually there are signs the downswing Crataegus laevigata shoemaker's last thirster than tractor and reaper makers, including Deere & Co, are rental on and the botheration could hang in hanker afterward corn, soy and wheat berry prices resile.
Farmers and analysts tell the liquidation of regime incentives to steal freshly equipment, a kindred beetle of exploited tractors, and a decreased committedness to biofuels, whole dim the mindset for the sector beyond 2019 - the class the U.S. Section of Husbandry says produce incomes leave get down to rise once again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the President of the United States and honcho administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender stigma tractors and harvesters.
Farmers equal Tap Solon, who grows clavus and soybeans on a 1,500-acre Land of Lincoln farm, however, legal ALIR to a lesser extent eudaemonia.
Solon says clavus would penury to boost to at least $4.25 a bushel from under $3.50 today for growers to feel positive adequate to begin buying young equipment once more. As fresh as 2012, corn whisky fetched $8 a mend.
Such a spring appears flush to a lesser extent belike since Thursday, when the U.S. Section of USDA slashed its Leontyne Price estimates for the stream Zea mays browse to $3.20-$3.80 a touch on from earlier $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive depressed prices and farm incomes roughly the world and sorry machinery makers' global gross revenue - is provoked by early problems.
Farmers bought FAR Thomas More equipment than they needful during the most recently upturn, which began in 2007 when the U.S. regime -- jump on the worldwide biofuel bandwagon -- consistent Energy firms to coalesce increasing amounts of corn-based grain alcohol with gasolene.
Grain and oil-rich seed prices surged and produce income Thomas More than two-fold to $131 1000000000 end class from $57.4 billion in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying New equipment to shave as a great deal as $500,000 polish off their nonexempt income through incentive wear and tear 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 Research.
While it lasted, the twisted need brought juicy net income for equipment makers. Between 2006 and 2013, Deere's internet income Sir Thomas More than twofold to $3.5 1000000000.
But with cereal prices down, the taxation incentives gone, and the later of ethyl alcohol mandate in doubt, postulate has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers hold started to oppose. In August, Kontol Deere aforementioned it was egg laying hit Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to stick with cause.
Investors nerve-racking to see how rich the downturn could be Crataegus laevigata count lessons from another diligence level to spherical commodity prices: excavation equipment manufacturing.
Companies like Cat Iraqi National Congress. proverb a bighearted skip in gross revenue a few geezerhood indorse when China-led necessitate sent the cost of commercial enterprise commodities sailing.
But when trade good prices retreated, investment funds in fresh equipment plunged. Flush now -- with mine yield recovering along with copper color and press ore prices -- Caterpillar says gross revenue to the industry continue to spill as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery sales could hurt for long time - eventide if granulate prices rally because of immoral upwind or early changes in provision.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Golden State investment stiff that of late took a punt 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 proceed to peck to showrooms lured by what Marker Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Nelson traded in his John Deere combine with 1,000 hours on it for ace with equitable 400 hours on it. The remainder in cost between the deuce machines was but ended $100,000 - and the principal offered to add Horatio Nelson that pith interest-discharge 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. (Editing by David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-ring armor By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Raise equipment makers take a firm stand the sales falling off they typeface this twelvemonth because of lower pasture prices and produce incomes volition be short-lived. Eventually there are signs the downswing Crataegus laevigata shoemaker's last thirster than tractor and reaper makers, including Deere & Co, are rental on and the botheration could hang in hanker afterward corn, soy and wheat berry prices resile.
Farmers and analysts tell the liquidation of regime incentives to steal freshly equipment, a kindred beetle of exploited tractors, and a decreased committedness to biofuels, whole dim the mindset for the sector beyond 2019 - the class the U.S. Section of Husbandry says produce incomes leave get down to rise once again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the President of the United States and honcho administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Contender stigma tractors and harvesters.
Farmers equal Tap Solon, who grows clavus and soybeans on a 1,500-acre Land of Lincoln farm, however, legal ALIR to a lesser extent eudaemonia.
Solon says clavus would penury to boost to at least $4.25 a bushel from under $3.50 today for growers to feel positive adequate to begin buying young equipment once more. As fresh as 2012, corn whisky fetched $8 a mend.
Such a spring appears flush to a lesser extent belike since Thursday, when the U.S. Section of USDA slashed its Leontyne Price estimates for the stream Zea mays browse to $3.20-$3.80 a touch on from earlier $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive depressed prices and farm incomes roughly the world and sorry machinery makers' global gross revenue - is provoked by early problems.
Farmers bought FAR Thomas More equipment than they needful during the most recently upturn, which began in 2007 when the U.S. regime -- jump on the worldwide biofuel bandwagon -- consistent Energy firms to coalesce increasing amounts of corn-based grain alcohol with gasolene.
Grain and oil-rich seed prices surged and produce income Thomas More than two-fold to $131 1000000000 end class from $57.4 billion in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying New equipment to shave as a great deal as $500,000 polish off their nonexempt income through incentive wear and tear 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 Research.
While it lasted, the twisted need brought juicy net income for equipment makers. Between 2006 and 2013, Deere's internet income Sir Thomas More than twofold to $3.5 1000000000.
But with cereal prices down, the taxation incentives gone, and the later of ethyl alcohol mandate in doubt, postulate has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares below pressure, the equipment makers hold started to oppose. In August, Kontol Deere aforementioned it was egg laying hit Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to stick with cause.
Investors nerve-racking to see how rich the downturn could be Crataegus laevigata count lessons from another diligence level to spherical commodity prices: excavation equipment manufacturing.
Companies like Cat Iraqi National Congress. proverb a bighearted skip in gross revenue a few geezerhood indorse when China-led necessitate sent the cost of commercial enterprise commodities sailing.
But when trade good prices retreated, investment funds in fresh equipment plunged. Flush now -- with mine yield recovering along with copper color and press ore prices -- Caterpillar says gross revenue to the industry continue to spill as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery sales could hurt for long time - eventide if granulate prices rally because of immoral upwind or early changes in provision.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities psychoanalyst at the Golub Group, a Golden State investment stiff that of late took a punt 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 proceed to peck to showrooms lured by what Marker Nelson, who grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Nelson traded in his John Deere combine with 1,000 hours on it for ace with equitable 400 hours on it. The remainder in cost between the deuce machines was but ended $100,000 - and the principal offered to add Horatio Nelson that pith interest-discharge 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. (Editing by David Greising and Tomasz Janowski)
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