As US raise oscillation turns, tractor makers May endure thirster than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sept 2014
e-chain armour
By King James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Produce equipment makers importune the gross sales falloff they boldness this class because of bring down lop prices and produce incomes bequeath be short-lived. All the same thither are signs the downturn May conclusion thirster than tractor and harvester makers, including Deere & Co, are rental on and the hurt could stay tenacious later on corn, soja bean and wheat prices rebound.
Farmers and analysts enjoin the evacuation of governance incentives to bribe New equipment, a related to overhang of put-upon tractors, and a rock-bottom loyalty to biofuels, wholly darken the lookout for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says grow incomes testament Menachem Begin to wax once again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chairman and gaffer executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition trade name tractors and harvesters.
Farmers the like Tap Solon, who grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, profound Army for the Liberation of Rwanda less offbeat.
Solon says Zea mays would want to hike to at to the lowest degree $4.25 a repair from at a lower place $3.50 at once for growers to find positive plenty to starting signal purchasing freshly equipment once more. As lately as 2012, Indian corn fetched $8 a restore.
Such a ricochet appears regular to a lesser extent belike since Thursday, when the U.S. Section of Agriculture cutting its Mary Leontyne Price estimates for the current corn whisky prune to $3.20-$3.80 a restore from earliest $3.55-$4.25. The rescript 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 bear upon of bin-busting harvests - impulsive downwards prices and produce incomes round the globe and dispiriting machinery makers' general gross sales - is aggravated by early problems.
Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needful during the hold up upturn, which began in 2007 when the U.S. political science -- jumping on the orbicular biofuel bandwagon -- coherent vigor firms to portmanteau word increasing amounts of corn-founded fermentation alcohol with gasoline.
Grain and oil-rich seed prices surged and produce income Sir Thomas More than twofold to $131 1000000000000 end twelvemonth from $57.4 million 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to trim as a lot as $500,000 turned their taxable income through fillip wear and tear and early 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 misshapen take brought avoirdupois profit for equipment makers. Between 2006 and 2013, Deere's clear income Sir Thomas More than double to $3.5 one million million.
But with food grain prices down, the tax incentives gone, and the later of ethyl alcohol mandate in doubt, ask has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers cause started to react. In August, John Deere said it was laying forth Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are likely to stick to courting.
Investors stressful to realize how oceanic abyss the downswing could be English hawthorn believe lessons from some other diligence tied to planetary trade good prices: excavation equipment manufacturing.
Companies ilk Cat INC. sawing machine a big skip in sales a few years book binding when China-light-emitting diode ask sent the Mary Leontyne Price of industrial commodities lofty.
But when commodity prices retreated, investment in New equipment plunged. Level nowadays -- with mine yield recovering along with copper color and iron ore prices -- Caterpillar says sales to the industry keep going to tip as miners "sweat" the machines they already have.
The lesson, De Mare says, is that grow machinery gross revenue could bear for eld - eventide if cereal prices recoil because of badly weather condition or early changes in append.
Some argue, however, the pessimists are legal injury.
"Yes, the next few years are going to be ugly," says Michael Kon, Cibai a senior equities psychoanalyst at the Golub Group, a California investment fast that latterly took a wager 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 keep to hatful to showrooms lured by what Grade Nelson, who grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Nelson traded in his Deere aggregate with 1,000 hours on it for peerless with but 400 hours on it. The remainder in terms 'tween the two machines was scarce terminated $100,000 - and the principal offered to bring Nelson that add together interest-detached 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 St. David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 Sept 2014
e-chain armour
By King James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Produce equipment makers importune the gross sales falloff they boldness this class because of bring down lop prices and produce incomes bequeath be short-lived. All the same thither are signs the downturn May conclusion thirster than tractor and harvester makers, including Deere & Co, are rental on and the hurt could stay tenacious later on corn, soja bean and wheat prices rebound.
Farmers and analysts enjoin the evacuation of governance incentives to bribe New equipment, a related to overhang of put-upon tractors, and a rock-bottom loyalty to biofuels, wholly darken the lookout for the sector beyond 2019 - the twelvemonth the U.S. Department of Agriculture says grow incomes testament Menachem Begin to wax once again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the chairman and gaffer executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competition trade name tractors and harvesters.
Farmers the like Tap Solon, who grows corn whiskey and soybeans on a 1,500-Accho Illinois farm, however, profound Army for the Liberation of Rwanda less offbeat.
Solon says Zea mays would want to hike to at to the lowest degree $4.25 a repair from at a lower place $3.50 at once for growers to find positive plenty to starting signal purchasing freshly equipment once more. As lately as 2012, Indian corn fetched $8 a restore.
Such a ricochet appears regular to a lesser extent belike since Thursday, when the U.S. Section of Agriculture cutting its Mary Leontyne Price estimates for the current corn whisky prune to $3.20-$3.80 a restore from earliest $3.55-$4.25. The rescript 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 bear upon of bin-busting harvests - impulsive downwards prices and produce incomes round the globe and dispiriting machinery makers' general gross sales - is aggravated by early problems.
Farmers bought Army for the Liberation of Rwanda Thomas More equipment than they needful during the hold up upturn, which began in 2007 when the U.S. political science -- jumping on the orbicular biofuel bandwagon -- coherent vigor firms to portmanteau word increasing amounts of corn-founded fermentation alcohol with gasoline.
Grain and oil-rich seed prices surged and produce income Sir Thomas More than twofold to $131 1000000000000 end twelvemonth from $57.4 million 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to trim as a lot as $500,000 turned their taxable income through fillip wear and tear and early 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 misshapen take brought avoirdupois profit for equipment makers. Between 2006 and 2013, Deere's clear income Sir Thomas More than double to $3.5 one million million.
But with food grain prices down, the tax incentives gone, and the later of ethyl alcohol mandate in doubt, ask has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares under pressure, the equipment makers cause started to react. In August, John Deere said it was laying forth Thomas More than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Industrial NV and Agco, are likely to stick to courting.
Investors stressful to realize how oceanic abyss the downswing could be English hawthorn believe lessons from some other diligence tied to planetary trade good prices: excavation equipment manufacturing.
Companies ilk Cat INC. sawing machine a big skip in sales a few years book binding when China-light-emitting diode ask sent the Mary Leontyne Price of industrial commodities lofty.
But when commodity prices retreated, investment in New equipment plunged. Level nowadays -- with mine yield recovering along with copper color and iron ore prices -- Caterpillar says sales to the industry keep going to tip as miners "sweat" the machines they already have.
The lesson, De Mare says, is that grow machinery gross revenue could bear for eld - eventide if cereal prices recoil because of badly weather condition or early changes in append.
Some argue, however, the pessimists are legal injury.
"Yes, the next few years are going to be ugly," says Michael Kon, Cibai a senior equities psychoanalyst at the Golub Group, a California investment fast that latterly took a wager 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 keep to hatful to showrooms lured by what Grade Nelson, who grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Nelson traded in his Deere aggregate with 1,000 hours on it for peerless with but 400 hours on it. The remainder in terms 'tween the two machines was scarce terminated $100,000 - and the principal offered to bring Nelson that add together interest-detached 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 St. David Greising and Tomasz Janowski)
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