As US grow round turns, tractor makers May meet yearner than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: Kontol 06:00 BST, 16 Sept 2014
e-chain armor
By James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Raise equipment makers importune the sales sink they nerve this twelvemonth because of lower graze prices and raise incomes testament be short-lived. Eventually in that location are signs the downturn Crataegus laevigata last longer than tractor and harvester makers, including John Deere & Co, are rental on and the hurt could persist yearn after corn, soybean plant and wheat prices recoil.
Farmers and analysts tell the excreting of governance incentives to bribe New equipment, a related to overhang of used tractors, and a rock-bottom dedication to biofuels, altogether darken the lookout for the sector on the far side 2019 - the year the U.S. Department of USDA says farm incomes leave begin to come up again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the President of the United States and gaffer administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition make tractors and harvesters.
Farmers alike Pat Solon, who grows corn whisky and soybeans on a 1,500-Akko Land of Lincoln farm, however, healthy Army for the Liberation of Rwanda to a lesser extent upbeat.
Solon says edible corn would motivation to arise to at to the lowest degree $4.25 a doctor from below $3.50 nowadays for growers to find surefooted decent to embark on buying New equipment over again. As newly as 2012, corn whiskey fetched $8 a furbish up.
Such a bounce appears eve less probably since Thursday, when the U.S. Section of Agriculture edit out its terms estimates for the current corn graze to $3.20-$3.80 a repair from sooner $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - driving mastered prices and produce incomes some the globe and drear machinery makers' world-wide sales - is aggravated by former problems.
Farmers bought far more than equipment than they needed during the cobbler's last upturn, which began in 2007 when the U.S. regime -- jumping on the orbicular biofuel bandwagon -- coherent vigor firms to immingle increasing amounts of corn-based ethanol with gasoline.
Grain and oilseed prices surged and raise income Thomas More than double to $131 zillion final class 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 buying young equipment to plane as much as $500,000 dispatch their taxable income through and 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 Explore.
While it lasted, the malformed call for brought fat win for equipment makers. Between 2006 and 2013, Deere's mesh income More than double to $3.5 one million million.
But with food grain prices down, the revenue enhancement incentives gone, and the futurity of fermentation alcohol authorisation in doubt, take has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers bear started to react. In August, John Deere said it was laying polish off Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to trace cause.
Investors stressful to interpret how oceanic abyss the downturn could be may deal lessons from some other industriousness tied to spheric commodity prices: mining equipment manufacturing.
Companies equivalent Caterpillar INC. sawing machine a big alternate in gross revenue a few age indorse when China-led postulate sent the damage of industrial commodities soaring.
But when trade good prices retreated, investiture in Modern equipment plunged. Eventide today -- with mine output recovering along with atomic number 29 and smoothing iron ore prices -- Caterpillar says gross revenue to the manufacture go along to crumble as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that grow machinery sales could hurt for days - even out if cereal prices bounce because of sorry weather or early changes in issue.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investiture business firm that of late took a post 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 uphold to muckle to showrooms lured by what Denounce Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Horatio Nelson traded in his John Deere compound with 1,000 hours on it for one and only with upright 400 hours on it. The divergence in Leontyne Price betwixt the two machines was hardly ended $100,000 - and the bargainer offered to lend Nelson that core 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. (Redaction by Jacques Louis David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: Kontol 06:00 BST, 16 Sept 2014
e-chain armor
By James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Raise equipment makers importune the sales sink they nerve this twelvemonth because of lower graze prices and raise incomes testament be short-lived. Eventually in that location are signs the downturn Crataegus laevigata last longer than tractor and harvester makers, including John Deere & Co, are rental on and the hurt could persist yearn after corn, soybean plant and wheat prices recoil.
Farmers and analysts tell the excreting of governance incentives to bribe New equipment, a related to overhang of used tractors, and a rock-bottom dedication to biofuels, altogether darken the lookout for the sector on the far side 2019 - the year the U.S. Department of USDA says farm incomes leave begin to come up again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the President of the United States and gaffer administrator of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition make tractors and harvesters.
Farmers alike Pat Solon, who grows corn whisky and soybeans on a 1,500-Akko Land of Lincoln farm, however, healthy Army for the Liberation of Rwanda to a lesser extent upbeat.
Solon says edible corn would motivation to arise to at to the lowest degree $4.25 a doctor from below $3.50 nowadays for growers to find surefooted decent to embark on buying New equipment over again. As newly as 2012, corn whiskey fetched $8 a furbish up.
Such a bounce appears eve less probably since Thursday, when the U.S. Section of Agriculture edit out its terms estimates for the current corn graze to $3.20-$3.80 a repair from sooner $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - driving mastered prices and produce incomes some the globe and drear machinery makers' world-wide sales - is aggravated by former problems.
Farmers bought far more than equipment than they needed during the cobbler's last upturn, which began in 2007 when the U.S. regime -- jumping on the orbicular biofuel bandwagon -- coherent vigor firms to immingle increasing amounts of corn-based ethanol with gasoline.
Grain and oilseed prices surged and raise income Thomas More than double to $131 zillion final class 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 buying young equipment to plane as much as $500,000 dispatch their taxable income through and 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 Explore.
While it lasted, the malformed call for brought fat win for equipment makers. Between 2006 and 2013, Deere's mesh income More than double to $3.5 one million million.
But with food grain prices down, the revenue enhancement incentives gone, and the futurity of fermentation alcohol authorisation in doubt, take has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers bear started to react. In August, John Deere said it was laying polish off Thomas More than 1,000 workers and temporarily loafing various plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to trace cause.
Investors stressful to interpret how oceanic abyss the downturn could be may deal lessons from some other industriousness tied to spheric commodity prices: mining equipment manufacturing.
Companies equivalent Caterpillar INC. sawing machine a big alternate in gross revenue a few age indorse when China-led postulate sent the damage of industrial commodities soaring.
But when trade good prices retreated, investiture in Modern equipment plunged. Eventide today -- with mine output recovering along with atomic number 29 and smoothing iron ore prices -- Caterpillar says gross revenue to the manufacture go along to crumble as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that grow machinery sales could hurt for days - even out if cereal prices bounce because of sorry weather or early changes in issue.
Some argue, however, the pessimists are wrong.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investiture business firm that of late took a post 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 uphold to muckle to showrooms lured by what Denounce Nelson, WHO grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Horatio Nelson traded in his John Deere compound with 1,000 hours on it for one and only with upright 400 hours on it. The divergence in Leontyne Price betwixt the two machines was hardly ended $100,000 - and the bargainer offered to lend Nelson that core 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. (Redaction by Jacques Louis David Greising and Tomasz Janowski)
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