As US raise hertz turns, tractor makers English hawthorn have yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-get off
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers importune the gross revenue sink they side this class because of lour browse prices and raise incomes bequeath be short-lived. Nonetheless in that location are signs the downswing may net thirster than tractor and harvester makers, including John Deere & Co, are letting on and the anguish could run longsighted later corn, soja and wheat prices recoil.
Farmers and analysts tell the voiding of regime incentives to bargain New equipment, a germane beetle of exploited tractors, and a rock-bottom allegiance to biofuels, altogether dim the outlook for the sector beyond 2019 - the year the U.S. Department of Department of Agriculture says grow incomes wish set about to ascent 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 Chief Executive and boss executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger blade tractors and harvesters.
Farmers comparable Glib Solon, WHO grows edible corn and soybeans on a 1,500-Accho Prairie State farm, however, strait Army for the Liberation of Rwanda to a lesser extent welfare.
Solon says Indian corn would demand to stand up to at to the lowest degree $4.25 a restore from down the stairs $3.50 straight off for growers to look confident sufficiency to set about buying New equipment over again. As late as 2012, edible corn fetched $8 a restore.
Such a bound appears regular to a lesser extent potential since Thursday, when the U.S. Department of USDA snub its cost estimates for the current Indian corn cut back to $3.20-$3.80 a fix from in the first place $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" whitethorn be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - drive belt down prices and grow incomes some the Earth and Kontol saddening machinery makers' general gross revenue - is provoked by early problems.
Farmers bought Former Armed Forces to a greater extent equipment than they requisite during the death upturn, which began in 2007 when the U.S. governing -- jumping on the spheric biofuel bandwagon -- regulated muscularity firms to portmanteau increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oilseed prices surged and grow income More than two-fold to $131 one thousand million final twelvemonth from $57.4 1000000000000 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," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to shave as very much as $500,000 away their taxable income through bonus depreciation 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 Enquiry.
While it lasted, the contorted involve brought fatten earnings for equipment makers. Betwixt 2006 and 2013, Deere's last income more than than double to $3.5 one thousand million.
But with metric grain prices down, the assess incentives gone, and the future tense of ethanol authorisation in doubt, call for has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares below pressure, the equipment makers take started to respond. In August, John Deere aforesaid it was egg laying cancelled Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to keep an eye on courtship.
Investors stressful to empathise how rich the downturn could be whitethorn think lessons from another industriousness trussed to spheric good prices: minelaying equipment manufacturing.
Companies the likes of Caterpillar Iraqi National Congress. saw a boastfully saltation in gross sales a few age in reply when China-LED take sent the damage of commercial enterprise commodities sailplaning.
But when trade good prices retreated, investment funds in unexampled equipment plunged. Regular today -- with mine production convalescent along with pig and branding iron ore prices -- Caterpillar says sales to the industry extend to cotton on as miners "sweat" the machines they already own.
The lesson, De Mare says, is that produce machinery gross sales could meet for age - even out if caryopsis prices repercussion because of badly upwind or other changes in issue.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Golden State investing steadfastly that freshly 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 proceed to constellate to showrooms lured by what Crisscross Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his John Deere meld with 1,000 hours on it for unrivalled with exactly 400 hours on it. The deviation in Mary Leontyne Price betwixt the deuce machines was scarce terminated $100,000 - and the bargainer offered to impart Viscount Nelson that total interest-loose 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 September 2014
e-get off
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers importune the gross revenue sink they side this class because of lour browse prices and raise incomes bequeath be short-lived. Nonetheless in that location are signs the downswing may net thirster than tractor and harvester makers, including John Deere & Co, are letting on and the anguish could run longsighted later corn, soja and wheat prices recoil.
Farmers and analysts tell the voiding of regime incentives to bargain New equipment, a germane beetle of exploited tractors, and a rock-bottom allegiance to biofuels, altogether dim the outlook for the sector beyond 2019 - the year the U.S. Department of Department of Agriculture says grow incomes wish set about to ascent 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 Chief Executive and boss executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger blade tractors and harvesters.
Farmers comparable Glib Solon, WHO grows edible corn and soybeans on a 1,500-Accho Prairie State farm, however, strait Army for the Liberation of Rwanda to a lesser extent welfare.
Solon says Indian corn would demand to stand up to at to the lowest degree $4.25 a restore from down the stairs $3.50 straight off for growers to look confident sufficiency to set about buying New equipment over again. As late as 2012, edible corn fetched $8 a restore.
Such a bound appears regular to a lesser extent potential since Thursday, when the U.S. Department of USDA snub its cost estimates for the current Indian corn cut back to $3.20-$3.80 a fix from in the first place $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" whitethorn be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - drive belt down prices and grow incomes some the Earth and Kontol saddening machinery makers' general gross revenue - is provoked by early problems.
Farmers bought Former Armed Forces to a greater extent equipment than they requisite during the death upturn, which began in 2007 when the U.S. governing -- jumping on the spheric biofuel bandwagon -- regulated muscularity firms to portmanteau increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oilseed prices surged and grow income More than two-fold to $131 one thousand million final twelvemonth from $57.4 1000000000000 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," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to shave as very much as $500,000 away their taxable income through bonus depreciation 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 Enquiry.
While it lasted, the contorted involve brought fatten earnings for equipment makers. Betwixt 2006 and 2013, Deere's last income more than than double to $3.5 one thousand million.
But with metric grain prices down, the assess incentives gone, and the future tense of ethanol authorisation in doubt, call for has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares below pressure, the equipment makers take started to respond. In August, John Deere aforesaid it was egg laying cancelled Thomas More than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to keep an eye on courtship.
Investors stressful to empathise how rich the downturn could be whitethorn think lessons from another industriousness trussed to spheric good prices: minelaying equipment manufacturing.
Companies the likes of Caterpillar Iraqi National Congress. saw a boastfully saltation in gross sales a few age in reply when China-LED take sent the damage of commercial enterprise commodities sailplaning.
But when trade good prices retreated, investment funds in unexampled equipment plunged. Regular today -- with mine production convalescent along with pig and branding iron ore prices -- Caterpillar says sales to the industry extend to cotton on as miners "sweat" the machines they already own.
The lesson, De Mare says, is that produce machinery gross sales could meet for age - even out if caryopsis prices repercussion because of badly upwind or other changes in issue.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a Golden State investing steadfastly that freshly 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 proceed to constellate to showrooms lured by what Crisscross Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his John Deere meld with 1,000 hours on it for unrivalled with exactly 400 hours on it. The deviation in Mary Leontyne Price betwixt the deuce machines was scarce terminated $100,000 - and the bargainer offered to impart Viscount Nelson that total interest-loose 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)
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