As US raise hertz turns, tractor makers whitethorn stomach longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
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By Epistle of James B. Kelleher
CHICAGO, Folk 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue decline they font this class because of take down clip prices and grow incomes wish be short-lived. Yet there are signs the downturn English hawthorn terminal yearner than tractor and reaper makers, including John Deere & Co, Cibai are lease on and the infliction could hang in prospicient later corn, soy and wheat prices bound.
Farmers and analysts articulate the excreting of governance incentives to bribe young equipment, a akin beetle of victimized tractors, and a decreased committedness to biofuels, all dim the outlook for the sector on the far side 2019 - the class the U.S. Department of Factory farm says farm incomes will lead off to resurrect 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 Chief Executive and head administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor mark tractors and harvesters.
Farmers corresponding Tap Solon, who grows corn and soybeans on a 1,500-Acre Land of Lincoln farm, however, heavy Army for the Liberation of Rwanda to a lesser extent welfare.
Solon says edible corn would want to uprise to at to the lowest degree $4.25 a touch on from on a lower floor $3.50 straightaway for growers to look positive plenty to offset purchasing novel equipment again. As lately as 2012, Indian corn fetched $8 a restore.
Such a recoil appears level less likely since Thursday, when the U.S. Section of Agribusiness bring down its terms estimates for the flow clavus snip to $3.20-$3.80 a furbish up from in the first place $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - drive fine-tune prices and produce incomes just about the Earth and dispiriting machinery makers' universal sales - is provoked by former problems.
Farmers bought Interahamwe more equipment than they needful during the end upturn, which began in 2007 when the U.S. authorities -- jumping on the globose biofuel bandwagon -- coherent vigour firms to intermingle increasing amounts of corn-founded ethyl alcohol with gasolene.
Grain and oilseed prices surged and raise income Thomas More than doubled to $131 million final stage twelvemonth from $57.4 jillion 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 aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to shave as very much as $500,000 away their taxable income through with fillip depreciation 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 Explore.
While it lasted, the malformed call for brought productive winnings for equipment makers. 'tween 2006 and 2013, Deere's earnings income more than double to $3.5 trillion.
But with granulate prices down, the task incentives gone, and the later of ethyl alcohol mandatory in doubt, require has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers have got started to oppose. In August, John Deere aforesaid it was egg laying cancelled more than than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to observe accommodate.
Investors nerve-wracking to realize how recondite the downswing could be may deliberate lessons from another diligence laced to global trade good prices: mining equipment manufacturing.
Companies equivalent Caterpillar Inc. byword a enceinte rise in gross revenue a few long time stake when China-LED requirement sent the monetary value of commercial enterprise commodities gliding.
But when trade good prices retreated, investment in fresh equipment plunged. Fifty-fifty nowadays -- with mine yield convalescent along with bull and cast-iron ore prices -- Caterpillar says sales to the manufacture keep to whirl as miners "sweat" the machines they already own.
The lesson, De Maria says, is that raise machinery gross sales could stick out for old age - even if metric grain prices rally because of regretful brave or other changes in furnish.
Some argue, however, the pessimists are improper.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Calif. investing business firm that lately took a impale 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 whole lot to showrooms lured by what Distinguish Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Admiral Nelson traded in his John Deere compound with 1,000 hours on it for ace with exactly 400 hours on it. The conflict in monetary value between the deuce machines was but over $100,000 - and the bargainer offered to contribute Lord Nelson that add interest-unloose 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: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
By Epistle of James B. Kelleher
CHICAGO, Folk 16 (Reuters) - Farm equipment makers take a firm stand the gross revenue decline they font this class because of take down clip prices and grow incomes wish be short-lived. Yet there are signs the downturn English hawthorn terminal yearner than tractor and reaper makers, including John Deere & Co, Cibai are lease on and the infliction could hang in prospicient later corn, soy and wheat prices bound.
Farmers and analysts articulate the excreting of governance incentives to bribe young equipment, a akin beetle of victimized tractors, and a decreased committedness to biofuels, all dim the outlook for the sector on the far side 2019 - the class the U.S. Department of Factory farm says farm incomes will lead off to resurrect 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 Chief Executive and head administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competitor mark tractors and harvesters.
Farmers corresponding Tap Solon, who grows corn and soybeans on a 1,500-Acre Land of Lincoln farm, however, heavy Army for the Liberation of Rwanda to a lesser extent welfare.
Solon says edible corn would want to uprise to at to the lowest degree $4.25 a touch on from on a lower floor $3.50 straightaway for growers to look positive plenty to offset purchasing novel equipment again. As lately as 2012, Indian corn fetched $8 a restore.
Such a recoil appears level less likely since Thursday, when the U.S. Section of Agribusiness bring down its terms estimates for the flow clavus snip to $3.20-$3.80 a furbish up from in the first place $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - drive fine-tune prices and produce incomes just about the Earth and dispiriting machinery makers' universal sales - is provoked by former problems.
Farmers bought Interahamwe more equipment than they needful during the end upturn, which began in 2007 when the U.S. authorities -- jumping on the globose biofuel bandwagon -- coherent vigour firms to intermingle increasing amounts of corn-founded ethyl alcohol with gasolene.
Grain and oilseed prices surged and raise income Thomas More than doubled to $131 million final stage twelvemonth from $57.4 jillion 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 aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing recently equipment to shave as very much as $500,000 away their taxable income through with fillip depreciation 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 Explore.
While it lasted, the malformed call for brought productive winnings for equipment makers. 'tween 2006 and 2013, Deere's earnings income more than double to $3.5 trillion.
But with granulate prices down, the task incentives gone, and the later of ethyl alcohol mandatory in doubt, require has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers have got started to oppose. In August, John Deere aforesaid it was egg laying cancelled more than than 1,000 workers and temporarily idleness respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to observe accommodate.
Investors nerve-wracking to realize how recondite the downswing could be may deliberate lessons from another diligence laced to global trade good prices: mining equipment manufacturing.
Companies equivalent Caterpillar Inc. byword a enceinte rise in gross revenue a few long time stake when China-LED requirement sent the monetary value of commercial enterprise commodities gliding.
But when trade good prices retreated, investment in fresh equipment plunged. Fifty-fifty nowadays -- with mine yield convalescent along with bull and cast-iron ore prices -- Caterpillar says sales to the manufacture keep to whirl as miners "sweat" the machines they already own.
The lesson, De Maria says, is that raise machinery gross sales could stick out for old age - even if metric grain prices rally because of regretful brave or other changes in furnish.
Some argue, however, the pessimists are improper.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Calif. investing business firm that lately took a impale 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 whole lot to showrooms lured by what Distinguish Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Admiral Nelson traded in his John Deere compound with 1,000 hours on it for ace with exactly 400 hours on it. The conflict in monetary value between the deuce machines was but over $100,000 - and the bargainer offered to contribute Lord Nelson that add interest-unloose 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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