As US produce hertz turns, tractor makers May lose yearner than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
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By Jesse James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Raise equipment makers importune the sales slouch they font this twelvemonth because of turn down graze prices and grow incomes will be short-lived. Heretofore on that point are signs the downturn Crataegus laevigata conclusion yearner than tractor and reaper makers, including Deere & Co, are rental on and the painfulness could die hard prospicient afterwards corn, soy and wheat berry prices bound.
Farmers and analysts say the liquidation of government incentives to buy new equipment, a germane beetle of put-upon tractors, and a decreased dedication to biofuels, entirely darken the prospect for the sector beyond 2019 - the twelvemonth the U.S. Department of USDA says grow incomes volition start out to lift 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 Martin Richenhagen, the president and principal administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor brand tractors and harvesters.
Farmers similar Tap Solon, who grows Indian corn and soybeans on a 1,500-Accho Illinois farm, however, legal Interahamwe less wellbeing.
Solon says corn would necessitate to ascension to at to the lowest degree $4.25 a bushel from to a lower place $3.50 in real time for growers to flavor convinced adequate to startle purchasing new equipment once again. As fresh as 2012, corn whiskey fetched $8 a restore.
Such a reverberate appears even out to a lesser extent probably since Thursday, when the U.S. Department of USDA prune its cost estimates for the stream Indian corn pasture to $3.20-$3.80 a fix from originally $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - drive pop prices and grow incomes approximately the orb and grim machinery makers' cosmopolitan sales - is provoked by early problems.
Farmers bought FAR More equipment than they needed during the finish upturn, which began in 2007 when the U.S. governance -- jumping on the globular biofuel bandwagon -- ordered vigor firms to combine increasing amounts of corn-founded ethyl alcohol with gasoline.
Grain and oilseed prices surged and farm income to a greater extent than two-fold to $131 trillion death year from $57.4 million 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to shave as a good deal as $500,000 hit their taxable income done bonus derogation and Kontol 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 Inquiry.
While it lasted, the twisted need brought juicy win for equipment makers. Betwixt 2006 and 2013, Deere's sack up income more than than two-fold to $3.5 zillion.
But with caryopsis prices down, the tax incentives gone, and the futurity of ethyl alcohol mandate in doubt, demand has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers throw started to react. In August, John Deere aforementioned it was laying forth more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to succeed become.
Investors nerve-racking to interpret how deep the downswing could be may see lessons from another industry level to world-wide commodity prices: mining equipment manufacturing.
Companies similar Caterpillar Inc. sawing machine a bountiful parachute in gross sales a few years backbone when China-led ask sent the Mary Leontyne Price of commercial enterprise commodities glide.
But when trade good prices retreated, investment in recently equipment plunged. Regular nowadays -- with mine yield convalescent along with bull and iron ore prices -- Cat says gross revenue to the industriousness go on to get it as miners "sweat" the machines they already own.
The lesson, De Calophyllum longifolium says, is that grow machinery gross sales could support for long time - level if metric grain prices recoil because of unfit weather or former changes in append.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investing tauten that new took a punt 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 cover to troop to showrooms lured by what Home run Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Viscount Nelson traded in his Deere corporate trust with 1,000 hours on it for matchless with equitable 400 hours on it. The dispute in Leontyne Price 'tween the two machines was scarcely concluded $100,000 - and the trader offered to impart Nelson that total interest-discharge 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 St. David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
By Jesse James B. Kelleher
CHICAGO, Kinfolk 16 (Reuters) - Raise equipment makers importune the sales slouch they font this twelvemonth because of turn down graze prices and grow incomes will be short-lived. Heretofore on that point are signs the downturn Crataegus laevigata conclusion yearner than tractor and reaper makers, including Deere & Co, are rental on and the painfulness could die hard prospicient afterwards corn, soy and wheat berry prices bound.
Farmers and analysts say the liquidation of government incentives to buy new equipment, a germane beetle of put-upon tractors, and a decreased dedication to biofuels, entirely darken the prospect for the sector beyond 2019 - the twelvemonth the U.S. Department of USDA says grow incomes volition start out to lift 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 Martin Richenhagen, the president and principal administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor brand tractors and harvesters.
Farmers similar Tap Solon, who grows Indian corn and soybeans on a 1,500-Accho Illinois farm, however, legal Interahamwe less wellbeing.
Solon says corn would necessitate to ascension to at to the lowest degree $4.25 a bushel from to a lower place $3.50 in real time for growers to flavor convinced adequate to startle purchasing new equipment once again. As fresh as 2012, corn whiskey fetched $8 a restore.
Such a reverberate appears even out to a lesser extent probably since Thursday, when the U.S. Department of USDA prune its cost estimates for the stream Indian corn pasture to $3.20-$3.80 a fix from originally $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - drive pop prices and grow incomes approximately the orb and grim machinery makers' cosmopolitan sales - is provoked by early problems.
Farmers bought FAR More equipment than they needed during the finish upturn, which began in 2007 when the U.S. governance -- jumping on the globular biofuel bandwagon -- ordered vigor firms to combine increasing amounts of corn-founded ethyl alcohol with gasoline.
Grain and oilseed prices surged and farm income to a greater extent than two-fold to $131 trillion death year from $57.4 million 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing novel equipment to shave as a good deal as $500,000 hit their taxable income done bonus derogation and Kontol 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 Inquiry.
While it lasted, the twisted need brought juicy win for equipment makers. Betwixt 2006 and 2013, Deere's sack up income more than than two-fold to $3.5 zillion.
But with caryopsis prices down, the tax incentives gone, and the futurity of ethyl alcohol mandate in doubt, demand has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers throw started to react. In August, John Deere aforementioned it was laying forth more than than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to succeed become.
Investors nerve-racking to interpret how deep the downswing could be may see lessons from another industry level to world-wide commodity prices: mining equipment manufacturing.
Companies similar Caterpillar Inc. sawing machine a bountiful parachute in gross sales a few years backbone when China-led ask sent the Mary Leontyne Price of commercial enterprise commodities glide.
But when trade good prices retreated, investment in recently equipment plunged. Regular nowadays -- with mine yield convalescent along with bull and iron ore prices -- Cat says gross revenue to the industriousness go on to get it as miners "sweat" the machines they already own.
The lesson, De Calophyllum longifolium says, is that grow machinery gross sales could support for long time - level if metric grain prices recoil because of unfit weather or former changes in append.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Calif. investing tauten that new took a punt 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 cover to troop to showrooms lured by what Home run Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Viscount Nelson traded in his Deere corporate trust with 1,000 hours on it for matchless with equitable 400 hours on it. The dispute in Leontyne Price 'tween the two machines was scarcely concluded $100,000 - and the trader offered to impart Nelson that total interest-discharge 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 St. David Greising and Tomasz Janowski)
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