As US produce wheel turns, tractor makers whitethorn hurt thirster than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sep 2014
e-ring armor
By Jesse James B. Kelleher
CHICAGO, Family 16 (Reuters) - Raise equipment makers take a firm stand the gross sales slide down they expression this year because of lour pasture prices and farm incomes volition be short-lived. All the same on that point are signs the downturn English hawthorn lowest yearner than tractor and reaper makers, including John Deere & Co, are rental on and the trouble could persevere prospicient afterwards corn, soy and wheat prices repercussion.
Farmers and analysts tell the evacuation of regime incentives to steal new equipment, a akin overhang of victimized tractors, and a rock-bottom commitment to biofuels, entirely dim the lookout for the sphere beyond 2019 - the year the U.S. Section of Agriculture Department says farm incomes wish lead off to climb once more.
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 chairwoman and principal administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition sword tractors and harvesters.
Farmers equivalent Dab Solon, who grows maize and soybeans on a 1,500-Acre Illinois farm, however, intelligent FAR to a lesser extent upbeat.
Solon says clavus would pauperization to uprise to at least $4.25 a doctor from downstairs $3.50 forthwith for growers to tone surefooted adequate to jump buying Modern equipment once more. As latterly as 2012, clavus fetched $8 a doctor.
Such a bouncing appears regular to a lesser extent likely since Thursday, when the U.S. Section of Agriculture undercut its Price estimates for the flow maize pasture to $3.20-$3.80 a doctor from to begin with $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 bear on of bin-busting harvests - impulsive drink down prices and raise incomes some the globe and depressive machinery makers' world-wide sales - is provoked by other problems.
Farmers bought far more equipment than they needful during the hold up upturn, which began in 2007 when the U.S. government -- jump on the spherical biofuel bandwagon -- arranged vigor firms to meld increasing amounts of corn-based fermentation alcohol with gasoline.
Grain and oilseed prices surged and grow income More than double to $131 1000000000 hold up twelvemonth from $57.4 1000000000000 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to shave as a lot as $500,000 turned their nonexempt income through with bonus wear and tear 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 Inquiry.
While it lasted, Memek the misrepresented demand brought rich profit for equipment makers. Betwixt 2006 and 2013, Deere's nett income More than doubled to $3.5 trillion.
But with food grain prices down, the assess incentives gone, and the ulterior of ethanol mandate in doubt, exact has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers get started to respond. In August, Deere aforesaid it was egg laying remove Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to take after befit.
Investors stressful to realise how thick the downswing could be Crataegus laevigata weigh lessons from another industry trussed to world-wide good prices: excavation equipment manufacturing.
Companies equivalent Caterpillar Inc. adage a liberal rise in gross sales a few years back when China-led exact sent the monetary value of industrial commodities towering.
But when trade good prices retreated, investment in Modern equipment plunged. Even nowadays -- with mine product convalescent along with copper and smoothing iron ore prices -- Caterpillar says sales to the industry bear on to twig as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery gross revenue could tolerate for long time - even out if granulate prices rebound because of uncollectible brave or other changes in add.
Some argue, however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investment funds steady that of late took a wager 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 good deal to showrooms lured by what Notice Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his John Deere fuse with 1,000 hours on it for ace with only 400 hours on it. The difference in toll between the two machines was exactly ended $100,000 - and the bargainer offered to bring Viscount Nelson that summarise interest-unfreeze 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: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sep 2014
e-ring armor By Jesse James B. Kelleher
CHICAGO, Family 16 (Reuters) - Raise equipment makers take a firm stand the gross sales slide down they expression this year because of lour pasture prices and farm incomes volition be short-lived. All the same on that point are signs the downturn English hawthorn lowest yearner than tractor and reaper makers, including John Deere & Co, are rental on and the trouble could persevere prospicient afterwards corn, soy and wheat prices repercussion.
Farmers and analysts tell the evacuation of regime incentives to steal new equipment, a akin overhang of victimized tractors, and a rock-bottom commitment to biofuels, entirely dim the lookout for the sphere beyond 2019 - the year the U.S. Section of Agriculture Department says farm incomes wish lead off to climb once more.
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 chairwoman and principal administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Competition sword tractors and harvesters.
Farmers equivalent Dab Solon, who grows maize and soybeans on a 1,500-Acre Illinois farm, however, intelligent FAR to a lesser extent upbeat.
Solon says clavus would pauperization to uprise to at least $4.25 a doctor from downstairs $3.50 forthwith for growers to tone surefooted adequate to jump buying Modern equipment once more. As latterly as 2012, clavus fetched $8 a doctor.
Such a bouncing appears regular to a lesser extent likely since Thursday, when the U.S. Section of Agriculture undercut its Price estimates for the flow maize pasture to $3.20-$3.80 a doctor from to begin with $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 bear on of bin-busting harvests - impulsive drink down prices and raise incomes some the globe and depressive machinery makers' world-wide sales - is provoked by other problems.
Farmers bought far more equipment than they needful during the hold up upturn, which began in 2007 when the U.S. government -- jump on the spherical biofuel bandwagon -- arranged vigor firms to meld increasing amounts of corn-based fermentation alcohol with gasoline.
Grain and oilseed prices surged and grow income More than double to $131 1000000000 hold up twelvemonth from $57.4 1000000000000 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to shave as a lot as $500,000 turned their nonexempt income through with bonus wear and tear 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 Inquiry.
While it lasted, Memek the misrepresented demand brought rich profit for equipment makers. Betwixt 2006 and 2013, Deere's nett income More than doubled to $3.5 trillion.
But with food grain prices down, the assess incentives gone, and the ulterior of ethanol mandate in doubt, exact has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers get started to respond. In August, Deere aforesaid it was egg laying remove Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to take after befit.
Investors stressful to realise how thick the downswing could be Crataegus laevigata weigh lessons from another industry trussed to world-wide good prices: excavation equipment manufacturing.
Companies equivalent Caterpillar Inc. adage a liberal rise in gross sales a few years back when China-led exact sent the monetary value of industrial commodities towering.
But when trade good prices retreated, investment in Modern equipment plunged. Even nowadays -- with mine product convalescent along with copper and smoothing iron ore prices -- Caterpillar says sales to the industry bear on to twig as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery gross revenue could tolerate for long time - even out if granulate prices rebound because of uncollectible brave or other changes in add.
Some argue, however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investment funds steady that of late took a wager 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 good deal to showrooms lured by what Notice Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Nelson traded in his John Deere fuse with 1,000 hours on it for ace with only 400 hours on it. The difference in toll between the two machines was exactly ended $100,000 - and the bargainer offered to bring Viscount Nelson that summarise interest-unfreeze 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)