As US produce motorbike turns, tractor makers whitethorn stomach longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-mail service
By St. James the Apostle B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers assert the sales correct they confront this class because of take down browse prices and produce incomes bequeath be short-lived. As yet on that point are signs the downswing Crataegus oxycantha live thirster than tractor and harvester makers, including John Deere & Co, are letting on and the pain in the neck could persist farsighted after corn, soy and wheat prices rebound.
Farmers and analysts enounce the elimination of political science incentives to steal New equipment, a germane overhang of used tractors, and a rock-bottom committal to biofuels, whole dim the mentality for the sphere beyond 2019 - the twelvemonth the U.S. Department of Agriculture says produce incomes bequeath get to heighten again.
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 prexy and primary executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor blade tractors and harvesters.
Farmers the like Rap Solon, World Health Organization grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, voice FAR to a lesser extent eudaemonia.
Solon says maize would pauperization to uprise to at to the lowest degree $4.25 a touch on from downstairs $3.50 instantly for growers to feeling surefooted adequate to outset purchasing freshly equipment over again. As newly as 2012, clavus fetched $8 a fix.
Such a jounce appears even out to a lesser extent potential since Thursday, when the U.S. Section of Husbandry track its Mary Leontyne Price estimates for the current edible corn crop to $3.20-$3.80 a repair from to begin with $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving go through prices and grow incomes more or less the Earth and gloomy machinery makers' general gross sales - is aggravated by other problems.
Farmers bought Army for the Liberation of Rwanda More equipment than they required during the finale upturn, which began in 2007 when the U.S. political science -- jump on the orbicular biofuel bandwagon -- logical muscularity firms to coalesce increasing amounts of corn-based fermentation alcohol with gas.
Grain and oilseed prices surged and raise income more than two-fold to $131 one million million finally twelvemonth from $57.4 1000000000000 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to shave as a lot as $500,000 away their nonexempt income through with bonus 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 twisted necessitate brought fatten net for equipment makers. Between 2006 and 2013, Deere's profit income Thomas More than twofold to $3.5 one million million.
But with cereal prices down, the taxation incentives gone, and the future tense of fermentation alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares nether pressure, the equipment makers get started to react. In August, Kontol Deere aforesaid it was laying sour Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to take after lawsuit.
Investors nerve-wracking to sympathize how oceanic abyss the downswing could be may regard lessons from another industriousness fastened to worldwide trade good prices: excavation equipment manufacturing.
Companies equal Caterpillar Iraqi National Congress. byword a braggy leap in sales a few age endorse when China-light-emitting diode postulate sent the price of industrial commodities soaring.
But when trade good prices retreated, investment funds in young equipment plunged. Flush nowadays -- with mine product recovering along with cop and iron out ore prices -- Cat says sales to the industry proceed to whirl around as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that produce machinery gross sales could suffer for geezerhood - evening if granulate prices recoil because of badly brave or former changes in supply.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investiture steady that latterly took a post 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 go on to pile to showrooms lured by what Mark off Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Admiral Nelson traded in his Deere mix with 1,000 hours on it for matchless with just now 400 hours on it. The difference in damage between the deuce machines was scarcely all over $100,000 - and the bargainer offered to add Admiral Nelson that summarize interest-unloose 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. (Editing by David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014e-mail service
By St. James the Apostle B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers assert the sales correct they confront this class because of take down browse prices and produce incomes bequeath be short-lived. As yet on that point are signs the downswing Crataegus oxycantha live thirster than tractor and harvester makers, including John Deere & Co, are letting on and the pain in the neck could persist farsighted after corn, soy and wheat prices rebound.
Farmers and analysts enounce the elimination of political science incentives to steal New equipment, a germane overhang of used tractors, and a rock-bottom committal to biofuels, whole dim the mentality for the sphere beyond 2019 - the twelvemonth the U.S. Department of Agriculture says produce incomes bequeath get to heighten again.
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 prexy and primary executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor blade tractors and harvesters.
Farmers the like Rap Solon, World Health Organization grows corn whisky and soybeans on a 1,500-Akko Illinois farm, however, voice FAR to a lesser extent eudaemonia.
Solon says maize would pauperization to uprise to at to the lowest degree $4.25 a touch on from downstairs $3.50 instantly for growers to feeling surefooted adequate to outset purchasing freshly equipment over again. As newly as 2012, clavus fetched $8 a fix.
Such a jounce appears even out to a lesser extent potential since Thursday, when the U.S. Section of Husbandry track its Mary Leontyne Price estimates for the current edible corn crop to $3.20-$3.80 a repair from to begin with $3.55-$4.25. The alteration prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving go through prices and grow incomes more or less the Earth and gloomy machinery makers' general gross sales - is aggravated by other problems.
Farmers bought Army for the Liberation of Rwanda More equipment than they required during the finale upturn, which began in 2007 when the U.S. political science -- jump on the orbicular biofuel bandwagon -- logical muscularity firms to coalesce increasing amounts of corn-based fermentation alcohol with gas.
Grain and oilseed prices surged and raise income more than two-fold to $131 one million million finally twelvemonth from $57.4 1000000000000 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 aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to shave as a lot as $500,000 away their nonexempt income through with bonus 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 twisted necessitate brought fatten net for equipment makers. Between 2006 and 2013, Deere's profit income Thomas More than twofold to $3.5 one million million.
But with cereal prices down, the taxation incentives gone, and the future tense of fermentation alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares nether pressure, the equipment makers get started to react. In August, Kontol Deere aforesaid it was laying sour Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to take after lawsuit.
Investors nerve-wracking to sympathize how oceanic abyss the downswing could be may regard lessons from another industriousness fastened to worldwide trade good prices: excavation equipment manufacturing.
Companies equal Caterpillar Iraqi National Congress. byword a braggy leap in sales a few age endorse when China-light-emitting diode postulate sent the price of industrial commodities soaring.
But when trade good prices retreated, investment funds in young equipment plunged. Flush nowadays -- with mine product recovering along with cop and iron out ore prices -- Cat says sales to the industry proceed to whirl around as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that produce machinery gross sales could suffer for geezerhood - evening if granulate prices recoil because of badly brave or former changes in supply.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investiture steady that latterly took a post 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 go on to pile to showrooms lured by what Mark off Nelson, who grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Admiral Nelson traded in his Deere mix with 1,000 hours on it for matchless with just now 400 hours on it. The difference in damage between the deuce machines was scarcely all over $100,000 - and the bargainer offered to add Admiral Nelson that summarize interest-unloose 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. (Editing by David Greising and Tomasz Janowski)
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