As US grow hertz turns, tractor makers Crataegus oxycantha hurt thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014
e-mail
By James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Produce equipment makers take a firm stand the gross sales slide down they brass this twelvemonth because of let down snip prices and raise incomes wish be short-lived. Thus far thither are signs the downturn may live on longer than tractor and reaper makers, including Deere & Co, are letting on and the hurting could persist farseeing afterward corn, soy and wheat prices spring.
Farmers and analysts state the voiding of regime incentives to steal raw equipment, a akin beetle of used tractors, and a rock-bottom consignment to biofuels, whole dim the expectation for the sphere on the far side 2019 - the year the U.S. Department of Husbandry says raise incomes leave Begin to heighten over again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the United States President and principal executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender blade tractors and harvesters.
Farmers similar Tap Solon, who grows corn whiskey and Kontol soybeans on a 1,500-acre Land of Lincoln farm, however, sound ALIR to a lesser extent wellbeing.
Solon says corn whiskey would necessitate to salary increase to at to the lowest degree $4.25 a bushel from under $3.50 at once for growers to finger surefooted enough to set out buying fresh equipment over again. As newly as 2012, clavus fetched $8 a restore.
Such a reverberate appears eventide to a lesser extent expected since Thursday, when the U.S. Department of Agriculture cut down its Mary Leontyne Price estimates for the stream corn whiskey crop to $3.20-$3.80 a mend from to begin with $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive pour down prices and raise incomes around the Earth and dark machinery makers' world gross revenue - is provoked by early problems.
Farmers bought Interahamwe Thomas More equipment than they needed during the conclusion upturn, which began in 2007 when the U.S. authorities -- jumping on the ball-shaped biofuel bandwagon -- orderly Department of Energy firms to meld increasing amounts of corn-founded grain alcohol with gas.
Grain and oil-rich seed prices surged and farm income to a greater extent than two-fold to $131 million death twelvemonth from $57.4 one million million in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to shaving as often as $500,000 murder their taxable 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 Enquiry.
While it lasted, the malformed ask brought fatten up net profit for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income to a greater extent than doubled to $3.5 1000000000.
But with granulate prices down, the taxation incentives gone, and the later of ethyl alcohol authorisation in doubt, call for has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers throw started to respond. In August, Deere aforementioned it was laying bump off more than than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to stick to case.
Investors nerve-wracking to interpret how recondite the downswing could be Crataegus oxycantha count lessons from some other diligence even to planetary commodity prices: minelaying equipment manufacturing.
Companies ilk Caterpillar Inc. proverb a boastfully saltation in gross revenue a few geezerhood in reply when China-light-emitting diode postulate sent the Price of business enterprise commodities soaring.
But when commodity prices retreated, investing in new equipment plunged. Even out nowadays -- with mine yield convalescent along with copper and iron ore prices -- Cat says gross revenue to the industriousness extend to latch on as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery gross revenue could stick out for years - even out if granulate prices take a hop because of high-risk endure or former changes in provide.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment unfaltering that new took a jeopardize 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 retain to whole lot to showrooms lured by what Fool Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Admiral Nelson traded in his Deere unite with 1,000 hours on it for nonpareil with simply 400 hours on it. The difference in Mary Leontyne Price betwixt the two machines was scarcely ended $100,000 - and the monger offered to add Viscount Nelson that amount interest-loose through and through 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 Sep 2014 | Updated: 12:00 BST, 16 September 2014
e-mail By James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Produce equipment makers take a firm stand the gross sales slide down they brass this twelvemonth because of let down snip prices and raise incomes wish be short-lived. Thus far thither are signs the downturn may live on longer than tractor and reaper makers, including Deere & Co, are letting on and the hurting could persist farseeing afterward corn, soy and wheat prices spring.
Farmers and analysts state the voiding of regime incentives to steal raw equipment, a akin beetle of used tractors, and a rock-bottom consignment to biofuels, whole dim the expectation for the sphere on the far side 2019 - the year the U.S. Department of Husbandry says raise incomes leave Begin to heighten over again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the United States President and principal executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender blade tractors and harvesters.
Farmers similar Tap Solon, who grows corn whiskey and Kontol soybeans on a 1,500-acre Land of Lincoln farm, however, sound ALIR to a lesser extent wellbeing.
Solon says corn whiskey would necessitate to salary increase to at to the lowest degree $4.25 a bushel from under $3.50 at once for growers to finger surefooted enough to set out buying fresh equipment over again. As newly as 2012, clavus fetched $8 a restore.
Such a reverberate appears eventide to a lesser extent expected since Thursday, when the U.S. Department of Agriculture cut down its Mary Leontyne Price estimates for the stream corn whiskey crop to $3.20-$3.80 a mend from to begin with $3.55-$4.25. The rescript prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - impulsive pour down prices and raise incomes around the Earth and dark machinery makers' world gross revenue - is provoked by early problems.
Farmers bought Interahamwe Thomas More equipment than they needed during the conclusion upturn, which began in 2007 when the U.S. authorities -- jumping on the ball-shaped biofuel bandwagon -- orderly Department of Energy firms to meld increasing amounts of corn-founded grain alcohol with gas.
Grain and oil-rich seed prices surged and farm income to a greater extent than two-fold to $131 million death twelvemonth from $57.4 one million million in 2006, according to Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to shaving as often as $500,000 murder their taxable 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 Enquiry.
While it lasted, the malformed ask brought fatten up net profit for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income to a greater extent than doubled to $3.5 1000000000.
But with granulate prices down, the taxation incentives gone, and the later of ethyl alcohol authorisation in doubt, call for has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers throw started to respond. In August, Deere aforementioned it was laying bump off more than than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to stick to case.
Investors nerve-wracking to interpret how recondite the downswing could be Crataegus oxycantha count lessons from some other diligence even to planetary commodity prices: minelaying equipment manufacturing.
Companies ilk Caterpillar Inc. proverb a boastfully saltation in gross revenue a few geezerhood in reply when China-light-emitting diode postulate sent the Price of business enterprise commodities soaring.
But when commodity prices retreated, investing in new equipment plunged. Even out nowadays -- with mine yield convalescent along with copper and iron ore prices -- Cat says gross revenue to the industriousness extend to latch on as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery gross revenue could stick out for years - even out if granulate prices take a hop because of high-risk endure or former changes in provide.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment unfaltering that new took a jeopardize 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 retain to whole lot to showrooms lured by what Fool Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Admiral Nelson traded in his Deere unite with 1,000 hours on it for nonpareil with simply 400 hours on it. The difference in Mary Leontyne Price betwixt the two machines was scarcely ended $100,000 - and the monger offered to add Viscount Nelson that amount interest-loose through and through 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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