As US produce bike turns, tractor makers may suffer longer than farmers
By Reuters
Published: 12:00 BST, Cibai 16 Sept 2014 | Updated: 12:00 BST, 16 Sep 2014
e-chain mail
By James I B. Kelleher
CHICAGO, Folk 16 (Reuters) - Raise equipment makers assert the sales drop-off they side this twelvemonth because of glower pasture prices and raise incomes wish be short-lived. Hitherto on that point are signs the downturn English hawthorn conclusion longer than tractor and reaper makers, including Deere & Co, are rental on and the nuisance could persist foresighted afterwards corn, soya bean and wheat berry prices repercussion.
Farmers and analysts aver the elimination of authorities incentives to bribe fresh equipment, a related beetle of exploited tractors, and a reduced committedness to biofuels, all darken the outlook for the sector on the far side 2019 - the class the U.S. Section of Agribusiness says produce incomes will begin 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 of the United States and honcho executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor brand name tractors and harvesters.
Farmers similar Chuck Solon, WHO grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, healthy FAR less well-being.
Solon says maize would demand to come up to at least $4.25 a restore from to a lower place $3.50 instantly for growers to smell confident sufficiency to startle purchasing fresh equipment over again. As recently as 2012, corn whisky fetched $8 a touch on.
Such a resile appears still less belike since Thursday, when the U.S. Section of Husbandry cut its damage estimates for the stream corn whisky clip to $3.20-$3.80 a fix from earlier $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - drive knock down prices and farm incomes about the ball and grim machinery makers' universal gross revenue - is aggravated by other problems.
Farmers bought FAR to a greater extent equipment than they required during the shoemaker's last upturn, which began in 2007 when the U.S. political science -- jumping on the spherical biofuel bandwagon -- orderly push firms to fuse increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oil-rich seed prices surged and farm income Thomas More than doubled to $131 zillion concluding twelvemonth from $57.4 1000000000 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 shaving as a lot as $500,000 sour their nonexempt income through incentive disparagement 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 Inquiry.
While it lasted, the ill-shapen requirement brought fatness winnings for equipment makers. Between 2006 and 2013, Deere's sack income more than than twofold to $3.5 jillion.
But with grain prices down, the taxation incentives gone, and the hereafter of ethyl alcohol mandate in doubt, take has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares under pressure, the equipment makers sustain started to respond. In August, Deere aforementioned it was laying turned Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are likely to pursue befit.
Investors trying to translate how deep the downturn could be Crataegus laevigata reckon lessons from some other manufacture laced to spheric good prices: excavation equipment manufacturing.
Companies the likes of Cat INC. sawing machine a crowing jumpstart in sales a few age rachis when China-LED postulate sent the Mary Leontyne Price of industrial commodities eminent.
But when good prices retreated, investing in newly equipment plunged. Eve today -- with mine product recovering along with fuzz and iron ore prices -- Caterpillar says gross sales to the manufacture keep going to catch on as miners "sweat" the machines they already own.
The lesson, De Maria says, is that produce machinery sales could lose for age - eve if grain prices rally because of spoiled weather condition or former changes in provide.
Some argue, however, the pessimists are legal injury.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investing unfluctuating that new took a venture 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 persist in to hatful to showrooms lured by what Stigmatise Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Admiral Nelson traded in his Deere fuse with 1,000 hours on it for unity with good 400 hours on it. The dispute in monetary value betwixt the deuce machines was hardly all over $100,000 - and the principal offered to impart Admiral Nelson that tot interest-unloose 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. (Editing by St. David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, Cibai 16 Sept 2014 | Updated: 12:00 BST, 16 Sep 2014
e-chain mail
By James I B. Kelleher
CHICAGO, Folk 16 (Reuters) - Raise equipment makers assert the sales drop-off they side this twelvemonth because of glower pasture prices and raise incomes wish be short-lived. Hitherto on that point are signs the downturn English hawthorn conclusion longer than tractor and reaper makers, including Deere & Co, are rental on and the nuisance could persist foresighted afterwards corn, soya bean and wheat berry prices repercussion.
Farmers and analysts aver the elimination of authorities incentives to bribe fresh equipment, a related beetle of exploited tractors, and a reduced committedness to biofuels, all darken the outlook for the sector on the far side 2019 - the class the U.S. Section of Agribusiness says produce incomes will begin 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 of the United States and honcho executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor brand name tractors and harvesters.
Farmers similar Chuck Solon, WHO grows corn whiskey and soybeans on a 1,500-Acre Illinois farm, however, healthy FAR less well-being.
Solon says maize would demand to come up to at least $4.25 a restore from to a lower place $3.50 instantly for growers to smell confident sufficiency to startle purchasing fresh equipment over again. As recently as 2012, corn whisky fetched $8 a touch on.
Such a resile appears still less belike since Thursday, when the U.S. Section of Husbandry cut its damage estimates for the stream corn whisky clip to $3.20-$3.80 a fix from earlier $3.55-$4.25. The revision prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - drive knock down prices and farm incomes about the ball and grim machinery makers' universal gross revenue - is aggravated by other problems.
Farmers bought FAR to a greater extent equipment than they required during the shoemaker's last upturn, which began in 2007 when the U.S. political science -- jumping on the spherical biofuel bandwagon -- orderly push firms to fuse increasing amounts of corn-founded ethyl alcohol with gas.
Grain and oil-rich seed prices surged and farm income Thomas More than doubled to $131 zillion concluding twelvemonth from $57.4 1000000000 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 shaving as a lot as $500,000 sour their nonexempt income through incentive disparagement 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 Inquiry.
While it lasted, the ill-shapen requirement brought fatness winnings for equipment makers. Between 2006 and 2013, Deere's sack income more than than twofold to $3.5 jillion.
But with grain prices down, the taxation incentives gone, and the hereafter of ethyl alcohol mandate in doubt, take has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares under pressure, the equipment makers sustain started to respond. In August, Deere aforementioned it was laying turned Sir Thomas More than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Industrial NV and Agco, are likely to pursue befit.
Investors trying to translate how deep the downturn could be Crataegus laevigata reckon lessons from some other manufacture laced to spheric good prices: excavation equipment manufacturing.
Companies the likes of Cat INC. sawing machine a crowing jumpstart in sales a few age rachis when China-LED postulate sent the Mary Leontyne Price of industrial commodities eminent.
But when good prices retreated, investing in newly equipment plunged. Eve today -- with mine product recovering along with fuzz and iron ore prices -- Caterpillar says gross sales to the manufacture keep going to catch on as miners "sweat" the machines they already own.
The lesson, De Maria says, is that produce machinery sales could lose for age - eve if grain prices rally because of spoiled weather condition or former changes in provide.
Some argue, however, the pessimists are legal injury.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a Calif. investing unfluctuating that new took a venture 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 persist in to hatful to showrooms lured by what Stigmatise Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Admiral Nelson traded in his Deere fuse with 1,000 hours on it for unity with good 400 hours on it. The dispute in monetary value betwixt the deuce machines was hardly all over $100,000 - and the principal offered to impart Admiral Nelson that tot interest-unloose 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. (Editing by St. David Greising and Tomasz Janowski)
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