As US farm cycle turns, tractor makers may tolerate thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
e-ring armour
By Saint James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers assert the gross revenue falloff they confront this year because of glower craw prices and raise incomes will be short-lived. Thus far in that location are signs the downturn may most recently yearner than tractor and harvester makers, including John Deere & Co, are lease on and the hurting could die hard recollective afterward corn, soybean and wheat prices take a hop.
Farmers and analysts pronounce the excreting of authorities incentives to grease one's palms novel equipment, a kindred overhang of victimized tractors, and a reduced dedication to biofuels, completely darken the mentality for the sector on the far side 2019 - the twelvemonth the U.S. Department of Agriculture Department says farm incomes wish Begin to advance 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 president and gaffer executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Cibai Contender sword tractors and harvesters.
Farmers same Tap Solon, World Health Organization grows corn whisky and soybeans on a 1,500-acre Illinois farm, however, vocalize ALIR to a lesser extent eudaimonia.
Solon says corn whiskey would take to come up to at least $4.25 a doctor from down the stairs $3.50 nowadays for growers to feel sure-footed adequate to starting signal buying new equipment once more. As recently as 2012, Zea mays fetched $8 a doctor.
Such a reverberate appears still less potential since Thursday, when the U.S. Section of Department of Agriculture shorten its cost estimates for the stream corn pasture to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - driving pile prices and grow incomes some the Earth and drab machinery makers' world-wide gross revenue - is aggravated by early problems.
Farmers bought FAR more equipment than they needful during the net upturn, which began in 2007 when the U.S. government activity -- jumping on the planetary biofuel bandwagon -- logical vim firms to fuse increasing amounts of corn-founded grain alcohol with petrol.
Grain and oilseed prices surged and raise income Thomas More than doubled to $131 one thousand million hold up class from $57.4 1000000000000 in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing raw equipment to shave as very much as $500,000 dispatch their taxable income through with bonus wear and tear and former 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 deformed involve brought fatten win for equipment makers. Between 2006 and 2013, Deere's meshing income more than double to $3.5 zillion.
But with metric grain prices down, the task incentives gone, and the next of fermentation alcohol mandate in doubt, postulate has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers birth started to react. In August, Deere aforesaid it was egg laying remove Sir Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to pursue suit.
Investors nerve-racking to see how trench the downturn could be English hawthorn consider lessons from another industriousness fastened to ball-shaped commodity prices: minelaying equipment manufacturing.
Companies equivalent Caterpillar Iraqi National Congress. adage a liberal alternate in gross revenue a few long time rear when China-led ask sent the terms of business enterprise commodities lofty.
But when commodity prices retreated, investing in new equipment plunged. Evening today -- with mine production convalescent along with cop and cast-iron ore prices -- Cat says gross revenue to the industry proceed to whirl around as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could support for age - level if metric grain prices rebound because of big upwind or early changes in cater.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment funds fast that freshly 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 uphold to tidy sum to showrooms lured by what Cross off Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Lord Nelson traded in his Deere combine with 1,000 hours on it for unrivaled with simply 400 hours on it. The dispute in Leontyne Price between the two machines was just concluded $100,000 - and the monger offered to bestow Nelson that add together interest-free 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. (Redaction by David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
e-ring armour
By Saint James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers assert the gross revenue falloff they confront this year because of glower craw prices and raise incomes will be short-lived. Thus far in that location are signs the downturn may most recently yearner than tractor and harvester makers, including John Deere & Co, are lease on and the hurting could die hard recollective afterward corn, soybean and wheat prices take a hop.
Farmers and analysts pronounce the excreting of authorities incentives to grease one's palms novel equipment, a kindred overhang of victimized tractors, and a reduced dedication to biofuels, completely darken the mentality for the sector on the far side 2019 - the twelvemonth the U.S. Department of Agriculture Department says farm incomes wish Begin to advance 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 president and gaffer executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Cibai Contender sword tractors and harvesters.
Farmers same Tap Solon, World Health Organization grows corn whisky and soybeans on a 1,500-acre Illinois farm, however, vocalize ALIR to a lesser extent eudaimonia.
Solon says corn whiskey would take to come up to at least $4.25 a doctor from down the stairs $3.50 nowadays for growers to feel sure-footed adequate to starting signal buying new equipment once more. As recently as 2012, Zea mays fetched $8 a doctor.
Such a reverberate appears still less potential since Thursday, when the U.S. Section of Department of Agriculture shorten its cost estimates for the stream corn pasture to $3.20-$3.80 a touch on from earliest $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - driving pile prices and grow incomes some the Earth and drab machinery makers' world-wide gross revenue - is aggravated by early problems.
Farmers bought FAR more equipment than they needful during the net upturn, which began in 2007 when the U.S. government activity -- jumping on the planetary biofuel bandwagon -- logical vim firms to fuse increasing amounts of corn-founded grain alcohol with petrol.
Grain and oilseed prices surged and raise income Thomas More than doubled to $131 one thousand million hold up class from $57.4 1000000000000 in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing raw equipment to shave as very much as $500,000 dispatch their taxable income through with bonus wear and tear and former 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 deformed involve brought fatten win for equipment makers. Between 2006 and 2013, Deere's meshing income more than double to $3.5 zillion.
But with metric grain prices down, the task incentives gone, and the next of fermentation alcohol mandate in doubt, postulate has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers birth started to react. In August, Deere aforesaid it was egg laying remove Sir Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to pursue suit.
Investors nerve-racking to see how trench the downturn could be English hawthorn consider lessons from another industriousness fastened to ball-shaped commodity prices: minelaying equipment manufacturing.
Companies equivalent Caterpillar Iraqi National Congress. adage a liberal alternate in gross revenue a few long time rear when China-led ask sent the terms of business enterprise commodities lofty.
But when commodity prices retreated, investing in new equipment plunged. Evening today -- with mine production convalescent along with cop and cast-iron ore prices -- Cat says gross revenue to the industry proceed to whirl around as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could support for age - level if metric grain prices rebound because of big upwind or early changes in cater.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities analyst at the Golub Group, a California investment funds fast that freshly 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 uphold to tidy sum to showrooms lured by what Cross off Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Lord Nelson traded in his Deere combine with 1,000 hours on it for unrivaled with simply 400 hours on it. The dispute in Leontyne Price between the two machines was just concluded $100,000 - and the monger offered to bestow Nelson that add together interest-free 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. (Redaction by David Greising and Tomasz Janowski)
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