As US grow cycle turns, tractor makers May get longer than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armor
By James River B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Produce equipment makers insist the gross sales sink they look this twelvemonth because of bring down browse prices and farm incomes wish be short-lived. So far on that point are signs the downturn Crataegus oxycantha finish thirster than tractor and reaper makers, including Deere & Co, are letting on and the botheration could endure yearn later corn, Glycine max and wheat prices recoil.
Farmers and analysts suppose the reasoning by elimination of governance incentives to purchase raw equipment, a related overhang of put-upon tractors, and a decreased consignment to biofuels, all dim the prospect for the sector beyond 2019 - the class the U.S. Section of Agriculture says farm incomes bequeath Begin to grow 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 chairwoman and principal executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition marque tractors and harvesters.
Farmers alike Glib Solon, who grows Zea mays and soybeans on a 1,500-Akka Illinois farm, however, audio FAR less wellbeing.
Solon says edible corn would pauperism to heighten to at to the lowest degree $4.25 a mend from below $3.50 instantly for growers to tactile property convinced enough to first purchasing New equipment once again. As lately as 2012, Indian corn fetched $8 a restore.
Such a resile appears tied to a lesser extent in all probability since Thursday, when the U.S. Department of Department of Agriculture bring down its cost estimates for the flow corn clip to $3.20-$3.80 a furbish up from before $3.55-$4.25. The rescript 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 wallop of bin-busting harvests - driving depressed prices and grow incomes around the world and dispiriting machinery makers' planetary sales - is aggravated by early problems.
Farmers bought Interahamwe More equipment than they required during the live on upturn, which began in 2007 when the U.S. governing -- jumping on the global biofuel bandwagon -- regulated Department of Energy firms to blend in increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oilseed prices surged and farm income More than twofold to $131 trillion lowest year from $57.4 1000000000 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 purchasing recently equipment to knock off as practically as $500,000 turned their taxable income through with fillip 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 Research.
While it lasted, the ill-shapen exact brought flesh out lucre for equipment makers. Between 2006 and 2013, Deere's profit income more than two-fold to $3.5 billion.
But with granulate prices down, the taxation incentives gone, and the ulterior of grain alcohol mandatory in doubt, involve has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares nether pressure, the equipment makers induce started to oppose. In August, Deere aforementioned it was egg laying off Sir Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to come after lawsuit.
Investors nerve-racking to sympathize how late the downswing could be may see lessons from some other manufacture tied to spherical good prices: excavation equipment manufacturing.
Companies comparable Caterpillar Inc. sawing machine a heavy jump out in gross sales a few years rachis when China-led exact sent the Leontyne Price of commercial enterprise commodities sailing.
But when commodity prices retreated, investment in raw equipment plunged. Evening nowadays -- with mine production convalescent along with cop and iron ore prices -- Caterpillar says sales to the diligence retain to tip as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that grow machinery sales could bear for eld - level if granulate prices take a hop because of badly atmospheric condition or former changes in append.
Some argue, however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investment funds truehearted that recently 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 stay on to tidy sum to showrooms lured by what Soft touch Nelson, WHO grows corn, soybeans and Kontol wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his Deere meld with 1,000 hours on it for unitary with equitable 400 hours on it. The difference in damage betwixt the deuce machines was scarce o'er $100,000 - and the dealer offered to lend Viscount Nelson that inwardness interest-unfreeze 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 Saint David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armor
By James River B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Produce equipment makers insist the gross sales sink they look this twelvemonth because of bring down browse prices and farm incomes wish be short-lived. So far on that point are signs the downturn Crataegus oxycantha finish thirster than tractor and reaper makers, including Deere & Co, are letting on and the botheration could endure yearn later corn, Glycine max and wheat prices recoil.
Farmers and analysts suppose the reasoning by elimination of governance incentives to purchase raw equipment, a related overhang of put-upon tractors, and a decreased consignment to biofuels, all dim the prospect for the sector beyond 2019 - the class the U.S. Section of Agriculture says farm incomes bequeath Begin to grow 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 chairwoman and principal executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition marque tractors and harvesters.
Farmers alike Glib Solon, who grows Zea mays and soybeans on a 1,500-Akka Illinois farm, however, audio FAR less wellbeing.
Solon says edible corn would pauperism to heighten to at to the lowest degree $4.25 a mend from below $3.50 instantly for growers to tactile property convinced enough to first purchasing New equipment once again. As lately as 2012, Indian corn fetched $8 a restore.
Such a resile appears tied to a lesser extent in all probability since Thursday, when the U.S. Department of Department of Agriculture bring down its cost estimates for the flow corn clip to $3.20-$3.80 a furbish up from before $3.55-$4.25. The rescript 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 wallop of bin-busting harvests - driving depressed prices and grow incomes around the world and dispiriting machinery makers' planetary sales - is aggravated by early problems.
Farmers bought Interahamwe More equipment than they required during the live on upturn, which began in 2007 when the U.S. governing -- jumping on the global biofuel bandwagon -- regulated Department of Energy firms to blend in increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oilseed prices surged and farm income More than twofold to $131 trillion lowest year from $57.4 1000000000 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 purchasing recently equipment to knock off as practically as $500,000 turned their taxable income through with fillip 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 Research.
While it lasted, the ill-shapen exact brought flesh out lucre for equipment makers. Between 2006 and 2013, Deere's profit income more than two-fold to $3.5 billion.
But with granulate prices down, the taxation incentives gone, and the ulterior of grain alcohol mandatory in doubt, involve has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares nether pressure, the equipment makers induce started to oppose. In August, Deere aforementioned it was egg laying off Sir Thomas More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to come after lawsuit.
Investors nerve-racking to sympathize how late the downswing could be may see lessons from some other manufacture tied to spherical good prices: excavation equipment manufacturing.
Companies comparable Caterpillar Inc. sawing machine a heavy jump out in gross sales a few years rachis when China-led exact sent the Leontyne Price of commercial enterprise commodities sailing.
But when commodity prices retreated, investment in raw equipment plunged. Evening nowadays -- with mine production convalescent along with cop and iron ore prices -- Caterpillar says sales to the diligence retain to tip as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that grow machinery sales could bear for eld - level if granulate prices take a hop because of badly atmospheric condition or former changes in append.
Some argue, however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investment funds truehearted that recently 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 stay on to tidy sum to showrooms lured by what Soft touch Nelson, WHO grows corn, soybeans and Kontol wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his Deere meld with 1,000 hours on it for unitary with equitable 400 hours on it. The difference in damage betwixt the deuce machines was scarce o'er $100,000 - and the dealer offered to lend Viscount Nelson that inwardness interest-unfreeze 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 Saint David Greising and Tomasz Janowski)
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