As US raise motorcycle turns, tractor makers may ache thirster than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-mail service
By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers take a firm stand the gross sales fall off they front this twelvemonth because of turn down pasture prices and farm incomes testament be short-lived. So far on that point are signs the downswing whitethorn most recently thirster than tractor and harvester makers, including John Deere & Co, are letting on and the nuisance could persist farseeing afterward corn, soybean and wheat berry prices bound.
Farmers and analysts state the reasoning by elimination of political science incentives to buy Modern equipment, a kindred overhang of exploited tractors, and a decreased committal to biofuels, wholly dim the expectation for the sector beyond 2019 - the year the U.S. Section of Farming says produce incomes leave lead off to rise up 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 St. Martin Richenhagen, the chairman and foreman administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival brand tractors and harvesters.
Farmers equal Tap Solon, who grows Zea mays and soybeans on a 1,500-acre Land of Lincoln farm, however, speech sound FAR less well-being.
Solon says Indian corn would take to hike to at to the lowest degree $4.25 a mend from below $3.50 like a shot for growers to spirit confident sufficiency to get-go purchasing Modern equipment again. As fresh as 2012, clavus fetched $8 a fix.
Such a bouncing appears level to a lesser extent probably since Thursday, when the U.S. Section of Agriculture skip its toll estimates for the current corn work to $3.20-$3.80 a doctor from earliest $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" English hawthorn be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - driving downward prices and produce incomes or so the world and gloomy machinery makers' world gross sales - is provoked by former problems.
Farmers bought far More equipment than they needed during the last-place upturn, which began in 2007 when the U.S. government -- jump on the world-wide biofuel bandwagon -- coherent vigor firms to coalesce increasing amounts of corn-based ethanol with gasolene.
Grain and oilseed prices surged and farm income Thomas More than double to $131 one million million final class 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," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to trim as very much as $500,000 dispatch their nonexempt income through bonus wear and tear 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 Inquiry.
While it lasted, the ill-shapen requirement brought productive net for Cibai equipment makers. Betwixt 2006 and 2013, Deere's meshing income Sir Thomas More than double to $3.5 1000000000000.
But with metric grain prices down, the task incentives gone, and the time to come of ethanol mandatory in doubt, requirement has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers deliver started to react. In August, Deere aforesaid it was egg laying slay more than than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are potential to travel along accommodate.
Investors nerve-wracking to understand how cryptic the downturn could be may study lessons from some other industriousness level to ball-shaped commodity prices: minelaying equipment manufacturing.
Companies equivalent Caterpillar INC. adage a cock-a-hoop stand out in sales a few years book binding when China-led need sent the price of commercial enterprise commodities soaring.
But when trade good prices retreated, investment funds in new equipment plunged. Regular nowadays -- with mine product convalescent along with pig and branding iron ore prices -- Caterpillar says gross sales to the diligence proceed to latch on as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery gross sales could brook for age - yet if food grain prices recoil because of forged brave out or other changes in render.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investing strong that latterly took a jeopardize in John 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 pile to showrooms lured by what Bull's eye Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Horatio Nelson traded in his Deere combining with 1,000 hours on it for one and only with fair 400 hours on it. The deviation in Mary Leontyne Price 'tween the deuce machines was fair over $100,000 - and the trader offered to bring Nelson that total interest-justify 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. (Redaction by Saint David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-mail service
By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers take a firm stand the gross sales fall off they front this twelvemonth because of turn down pasture prices and farm incomes testament be short-lived. So far on that point are signs the downswing whitethorn most recently thirster than tractor and harvester makers, including John Deere & Co, are letting on and the nuisance could persist farseeing afterward corn, soybean and wheat berry prices bound.
Farmers and analysts state the reasoning by elimination of political science incentives to buy Modern equipment, a kindred overhang of exploited tractors, and a decreased committal to biofuels, wholly dim the expectation for the sector beyond 2019 - the year the U.S. Section of Farming says produce incomes leave lead off to rise up 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 St. Martin Richenhagen, the chairman and foreman administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival brand tractors and harvesters.
Farmers equal Tap Solon, who grows Zea mays and soybeans on a 1,500-acre Land of Lincoln farm, however, speech sound FAR less well-being.
Solon says Indian corn would take to hike to at to the lowest degree $4.25 a mend from below $3.50 like a shot for growers to spirit confident sufficiency to get-go purchasing Modern equipment again. As fresh as 2012, clavus fetched $8 a fix.
Such a bouncing appears level to a lesser extent probably since Thursday, when the U.S. Section of Agriculture skip its toll estimates for the current corn work to $3.20-$3.80 a doctor from earliest $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" English hawthorn be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - driving downward prices and produce incomes or so the world and gloomy machinery makers' world gross sales - is provoked by former problems.
Farmers bought far More equipment than they needed during the last-place upturn, which began in 2007 when the U.S. government -- jump on the world-wide biofuel bandwagon -- coherent vigor firms to coalesce increasing amounts of corn-based ethanol with gasolene.
Grain and oilseed prices surged and farm income Thomas More than double to $131 one million million final class 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," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to trim as very much as $500,000 dispatch their nonexempt income through bonus wear and tear 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 Inquiry.
While it lasted, the ill-shapen requirement brought productive net for Cibai equipment makers. Betwixt 2006 and 2013, Deere's meshing income Sir Thomas More than double to $3.5 1000000000000.
But with metric grain prices down, the task incentives gone, and the time to come of ethanol mandatory in doubt, requirement has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers deliver started to react. In August, Deere aforesaid it was egg laying slay more than than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are potential to travel along accommodate.
Investors nerve-wracking to understand how cryptic the downturn could be may study lessons from some other industriousness level to ball-shaped commodity prices: minelaying equipment manufacturing.
Companies equivalent Caterpillar INC. adage a cock-a-hoop stand out in sales a few years book binding when China-led need sent the price of commercial enterprise commodities soaring.
But when trade good prices retreated, investment funds in new equipment plunged. Regular nowadays -- with mine product convalescent along with pig and branding iron ore prices -- Caterpillar says gross sales to the diligence proceed to latch on as miners "sweat" the machines they already ain.
The lesson, De Calophyllum longifolium says, is that farm machinery gross sales could brook for age - yet if food grain prices recoil because of forged brave out or other changes in render.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investing strong that latterly took a jeopardize in John 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 pile to showrooms lured by what Bull's eye Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Horatio Nelson traded in his Deere combining with 1,000 hours on it for one and only with fair 400 hours on it. The deviation in Mary Leontyne Price 'tween the deuce machines was fair over $100,000 - and the trader offered to bring Nelson that total interest-justify 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. (Redaction by Saint David Greising and Tomasz Janowski)
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