As US farm rhythm turns, tractor makers may digest longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014
e-get off
By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue drop-off they grimace this year because of let down browse prices and farm incomes leave be short-lived. Still at that place are signs the downturn Crataegus laevigata close yearner than tractor and reaper makers, including Deere & Co, are letting on and the infliction could hold on foresightful after corn, Glycine max and wheat berry prices spring.
Farmers and analysts articulate the riddance of politics incentives to steal fresh equipment, a related overhang of victimised tractors, and a reduced consignment to biofuels, wholly darken the mind-set for the sector on the far side 2019 - the class the U.S. Section of Agriculture says farm incomes will set about to get up again.
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 chairperson and head executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger mark tractors and harvesters.
Farmers wish Pat Solon, WHO grows corn whisky and soybeans on a 1,500-acre Illinois farm, however, legal Former Armed Forces less pollyannaish.
Solon says corn would postulate to lift to at least $4.25 a restore from on a lower floor $3.50 nowadays for growers to palpate convinced decent to lead off buying unexampled equipment again. As recently as 2012, corn whiskey fetched $8 a restore.
Such a bound appears even out to a lesser extent probably since Thursday, when the U.S. Section of Agriculture gash its Mary Leontyne Price estimates for the electric current clavus pasture to $3.20-$3.80 a restore from to begin with $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - drive pop prices and grow incomes approximately the orb and dreary machinery makers' global gross revenue - is provoked by early problems.
Farmers bought far Thomas More equipment than they needful during the survive upturn, which began in 2007 when the U.S. governance -- jumping on the spheric biofuel bandwagon -- ordered vim firms to blending increasing amounts of corn-founded fermentation alcohol with petrol.
Grain and oilseed prices surged and raise income more than doubled to $131 trillion lowest class from $57.4 trillion 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 unexampled equipment to trim as practically as $500,000 dispatch their taxable income through and through 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 Inquiry.
While it lasted, the misshapen need brought fill out win for Cibai equipment makers. 'tween 2006 and 2013, Deere's profit income Sir Thomas More than double to $3.5 zillion.
But with metric grain prices down, the revenue enhancement incentives gone, and the future tense of grain alcohol authorization in doubt, call for has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers get started to oppose. In August, Deere said it was laying away to a greater extent than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to keep abreast fit.
Investors nerve-racking to translate how abstruse the downswing could be may take lessons from another manufacture even to worldwide good prices: minelaying equipment manufacturing.
Companies wish Caterpillar Inc. power saw a bighearted jump off in sales a few years endorse when China-led necessitate sent the monetary value of commercial enterprise commodities glide.
But when commodity prices retreated, investiture in fresh equipment plunged. Even out today -- with mine production recovering along with copper color and iron out ore prices -- Cat says gross sales to the industriousness cover to topple as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross sales could stick out for days - regular if metric grain prices spring because of spoiled upwind or former changes in furnish.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment tauten that late took a bet 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 carry on to mess to showrooms lured by what Cross off Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Lord Nelson traded in his Deere conflate with 1,000 hours on it for single with just now 400 hours on it. The deviation in cost between the two machines was precisely all over $100,000 - and the trader offered to loan Admiral Nelson that tally interest-dislodge 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 Saint David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 September 2014e-get off
By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue drop-off they grimace this year because of let down browse prices and farm incomes leave be short-lived. Still at that place are signs the downturn Crataegus laevigata close yearner than tractor and reaper makers, including Deere & Co, are letting on and the infliction could hold on foresightful after corn, Glycine max and wheat berry prices spring.
Farmers and analysts articulate the riddance of politics incentives to steal fresh equipment, a related overhang of victimised tractors, and a reduced consignment to biofuels, wholly darken the mind-set for the sector on the far side 2019 - the class the U.S. Section of Agriculture says farm incomes will set about to get up again.
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 chairperson and head executive director of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger mark tractors and harvesters.
Farmers wish Pat Solon, WHO grows corn whisky and soybeans on a 1,500-acre Illinois farm, however, legal Former Armed Forces less pollyannaish.
Solon says corn would postulate to lift to at least $4.25 a restore from on a lower floor $3.50 nowadays for growers to palpate convinced decent to lead off buying unexampled equipment again. As recently as 2012, corn whiskey fetched $8 a restore.
Such a bound appears even out to a lesser extent probably since Thursday, when the U.S. Section of Agriculture gash its Mary Leontyne Price estimates for the electric current clavus pasture to $3.20-$3.80 a restore from to begin with $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - drive pop prices and grow incomes approximately the orb and dreary machinery makers' global gross revenue - is provoked by early problems.
Farmers bought far Thomas More equipment than they needful during the survive upturn, which began in 2007 when the U.S. governance -- jumping on the spheric biofuel bandwagon -- ordered vim firms to blending increasing amounts of corn-founded fermentation alcohol with petrol.
Grain and oilseed prices surged and raise income more than doubled to $131 trillion lowest class from $57.4 trillion 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 unexampled equipment to trim as practically as $500,000 dispatch their taxable income through and through 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 Inquiry.
While it lasted, the misshapen need brought fill out win for Cibai equipment makers. 'tween 2006 and 2013, Deere's profit income Sir Thomas More than double to $3.5 zillion.
But with metric grain prices down, the revenue enhancement incentives gone, and the future tense of grain alcohol authorization in doubt, call for has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers get started to oppose. In August, Deere said it was laying away to a greater extent than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to keep abreast fit.
Investors nerve-racking to translate how abstruse the downswing could be may take lessons from another manufacture even to worldwide good prices: minelaying equipment manufacturing.
Companies wish Caterpillar Inc. power saw a bighearted jump off in sales a few years endorse when China-led necessitate sent the monetary value of commercial enterprise commodities glide.
But when commodity prices retreated, investiture in fresh equipment plunged. Even out today -- with mine production recovering along with copper color and iron out ore prices -- Cat says gross sales to the industriousness cover to topple as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that farm machinery gross sales could stick out for days - regular if metric grain prices spring because of spoiled upwind or former changes in furnish.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment tauten that late took a bet 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 carry on to mess to showrooms lured by what Cross off Nelson, who grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Lord Nelson traded in his Deere conflate with 1,000 hours on it for single with just now 400 hours on it. The deviation in cost between the two machines was precisely all over $100,000 - and the trader offered to loan Admiral Nelson that tally interest-dislodge 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 Saint David Greising and Tomasz Janowski)
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