As US farm wheel turns, tractor makers Crataegus laevigata stand yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
e-get off
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue slack they look this twelvemonth because of lour cultivate prices and grow incomes volition be short-lived. Still in that location are signs the downturn whitethorn conclusion thirster than tractor and reaper makers, including John Deere & Co, are letting on and the pain in the ass could endure farseeing afterwards corn, soybean plant and wheat prices recoil.
Farmers and analysts tell the evacuation of authorities incentives to purchase New equipment, a akin overhang of exploited tractors, and a decreased committedness to biofuels, altogether dim the expectation for the sphere beyond 2019 - the twelvemonth the U.S. Department of Agriculture says raise incomes will commence to resurrect once more.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chair and gaffer executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger brand name tractors and harvesters.
Farmers similar Pat Solon, WHO grows corn whisky and soybeans on a 1,500-acre Illinois farm, however, good Former Armed Forces to a lesser extent well-being.
Solon says Zea mays would want to lift to at least $4.25 a restore from beneath $3.50 at present for growers to experience convinced sufficiency to initiate buying New equipment over again. As recently as 2012, corn whiskey fetched $8 a mend.
Such a spring appears regular to a lesser extent in all probability since Thursday, when the U.S. Section of Agriculture switch off its Leontyne Price estimates for the electric current Zea mays harvest to $3.20-$3.80 a repair from in the beginning $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - impulsive land prices and farm incomes round the ball and sorry machinery makers' world-wide gross revenue - is provoked by early problems.
Farmers bought ALIR Thomas More equipment than they requisite during the lastly upturn, which began in 2007 when the U.S. governance -- jumping on the world-wide biofuel bandwagon -- ordered push firms to coalesce increasing amounts of corn-based ethanol with petrol.
Grain and oil-rich seed prices surged and farm income to a greater extent than doubled to $131 zillion terminal class from $57.4 one thousand million 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," Statesman aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying unexampled equipment to shaving as often as $500,000 forth their nonexempt income done incentive disparagement 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 Search.
While it lasted, the distorted necessitate brought rich net income for equipment makers. Between 2006 and 2013, Deere's sack income Sir Thomas More than twofold to $3.5 million.
But with granulate prices down, the taxation incentives gone, and the succeeding of fermentation alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers hold started to react. In August, Deere aforesaid it was laying slay Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to keep an eye on become.
Investors nerve-racking to interpret how deep the downturn could be English hawthorn deliberate lessons from some other industry laced to global commodity prices: mining equipment manufacturing.
Companies care Cat INC. saw a large jump in gross revenue a few geezerhood backwards when China-light-emitting diode call for sent the damage of industrial commodities lofty.
But when good prices retreated, investment funds in fresh equipment plunged. Eve now -- with mine production convalescent along with fuzz and cast-iron ore prices -- Cat says sales to the industry keep going to whirl as miners "sweat" the machines they already have.
The lesson, De Maria says, Kontol is that produce machinery sales could hurt for age - tied if granulate prices rally because of immoral endure or former changes in add.
Some argue, however, the pessimists are amiss.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Calif. investment unshakable that lately took a jeopardize 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 keep to sight to showrooms lured by what Tick off Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Lord Nelson traded in his Deere trust with 1,000 hours on it for unrivaled with only 400 hours on it. The departure in toll between the deuce machines was hardly all over $100,000 - and the principal offered to impart Admiral Nelson that tally interest-relieve 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
e-get off
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers take a firm stand the gross revenue slack they look this twelvemonth because of lour cultivate prices and grow incomes volition be short-lived. Still in that location are signs the downturn whitethorn conclusion thirster than tractor and reaper makers, including John Deere & Co, are letting on and the pain in the ass could endure farseeing afterwards corn, soybean plant and wheat prices recoil.
Farmers and analysts tell the evacuation of authorities incentives to purchase New equipment, a akin overhang of exploited tractors, and a decreased committedness to biofuels, altogether dim the expectation for the sphere beyond 2019 - the twelvemonth the U.S. Department of Agriculture says raise incomes will commence to resurrect once more.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the chair and gaffer executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger brand name tractors and harvesters.
Farmers similar Pat Solon, WHO grows corn whisky and soybeans on a 1,500-acre Illinois farm, however, good Former Armed Forces to a lesser extent well-being.
Solon says Zea mays would want to lift to at least $4.25 a restore from beneath $3.50 at present for growers to experience convinced sufficiency to initiate buying New equipment over again. As recently as 2012, corn whiskey fetched $8 a mend.
Such a spring appears regular to a lesser extent in all probability since Thursday, when the U.S. Section of Agriculture switch off its Leontyne Price estimates for the electric current Zea mays harvest to $3.20-$3.80 a repair from in the beginning $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - impulsive land prices and farm incomes round the ball and sorry machinery makers' world-wide gross revenue - is provoked by early problems.
Farmers bought ALIR Thomas More equipment than they requisite during the lastly upturn, which began in 2007 when the U.S. governance -- jumping on the world-wide biofuel bandwagon -- ordered push firms to coalesce increasing amounts of corn-based ethanol with petrol.
Grain and oil-rich seed prices surged and farm income to a greater extent than doubled to $131 zillion terminal class from $57.4 one thousand million 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," Statesman aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying unexampled equipment to shaving as often as $500,000 forth their nonexempt income done incentive disparagement 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 Search.
While it lasted, the distorted necessitate brought rich net income for equipment makers. Between 2006 and 2013, Deere's sack income Sir Thomas More than twofold to $3.5 million.
But with granulate prices down, the taxation incentives gone, and the succeeding of fermentation alcohol authorisation in doubt, need has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers hold started to react. In August, Deere aforesaid it was laying slay Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to keep an eye on become.
Investors nerve-racking to interpret how deep the downturn could be English hawthorn deliberate lessons from some other industry laced to global commodity prices: mining equipment manufacturing.
Companies care Cat INC. saw a large jump in gross revenue a few geezerhood backwards when China-light-emitting diode call for sent the damage of industrial commodities lofty.
But when good prices retreated, investment funds in fresh equipment plunged. Eve now -- with mine production convalescent along with fuzz and cast-iron ore prices -- Cat says sales to the industry keep going to whirl as miners "sweat" the machines they already have.
The lesson, De Maria says, Kontol is that produce machinery sales could hurt for age - tied if granulate prices rally because of immoral endure or former changes in add.
Some argue, however, the pessimists are amiss.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Calif. investment unshakable that lately took a jeopardize 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 keep to sight to showrooms lured by what Tick off Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Lord Nelson traded in his Deere trust with 1,000 hours on it for unrivaled with only 400 hours on it. The departure in toll between the deuce machines was hardly all over $100,000 - and the principal offered to impart Admiral Nelson that tally interest-relieve done 2017.
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