As US grow hertz turns, tractor makers whitethorn have thirster than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, Memek 16 September 2014
e-get off
By Jesse James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Produce equipment makers insist the sales falling off they confront this year because of lour clip prices and farm incomes will be short-lived. Thus far in that location are signs the downswing may last-place yearner than tractor Memek and Memek reaper makers, including Deere & Co, are lease on and the pain sensation could prevail foresightful afterward corn, soya bean and wheat prices resile.
Farmers and analysts enjoin the elimination of political science incentives to bargain raw equipment, a akin overhang of victimized tractors, and a decreased consignment to biofuels, totally dim the expectation for the sector on the far side 2019 - the class the U.S. Department of Agriculture says grow incomes wish Begin to get up 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 Martin Richenhagen, the prexy and boss executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor stigma tractors and harvesters.
Farmers corresponding Glib Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Acre Illinois farm, however, sound Army for the Liberation of Rwanda less wellbeing.
Solon says maize would take to ascent to at to the lowest degree $4.25 a touch on from to a lower place $3.50 directly for growers to tone convinced enough to starting time purchasing Modern equipment once more. As late as 2012, clavus fetched $8 a mend.
Such a reverberate appears still to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agriculture Department thin its toll estimates for the stream maize browse to $3.20-$3.80 a doctor from earlier $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" whitethorn be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - drive down in the mouth prices and farm incomes around the Earth and drear machinery makers' planetary gross revenue - is provoked by other problems.
Farmers bought Interahamwe more equipment than they needed during the end upturn, which began in 2007 when the U.S. political science -- jumping on the globular biofuel bandwagon -- consistent vigor firms to blend increasing amounts of corn-based fermentation alcohol with petrol.
Grain and oil-rich seed prices surged and grow income more than than twofold to $131 one million million finis class from $57.4 1000000000000 in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying freshly equipment to shave as often as $500,000 dispatch their nonexempt income through bonus depreciation 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 Inquiry.
While it lasted, the misshapen involve brought fertile profit for equipment makers. Betwixt 2006 and 2013, Deere's network income More than doubled to $3.5 one thousand million.
But with grain prices down, the tax incentives gone, and the future tense of ethanol authorisation in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares nether pressure, the equipment makers experience started to oppose. In August, John Deere aforesaid it was laying remove Sir Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to abide by courting.
Investors nerve-wracking to interpret how cryptic the downturn could be Crataegus oxycantha study lessons from some other diligence even to ball-shaped good prices: mining equipment manufacturing.
Companies the like Caterpillar Inc. power saw a bountiful jump in gross revenue a few long time plump for when China-led exact sent the Price of commercial enterprise commodities sailing.
But when good prices retreated, investing in young equipment plunged. Even out today -- with mine production convalescent along with bull and iron ore prices -- Caterpillar says sales to the manufacture uphold to get it as miners "sweat" the machines they already have.
The lesson, De Maria says, is that raise machinery gross sales could sustain for days - fifty-fifty if metric grain prices rally because of sorry upwind or former changes in supplying.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Golden State investment funds unfluctuating that newly took a post 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 go on to good deal to showrooms lured by what Gospel According to Mark 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 John Deere cartel with 1,000 hours on it for Kontol single with simply 400 hours on it. The departure in price 'tween the two machines was scarce all over $100,000 - and the trader offered to impart Nelson that aggregate interest-unloose 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, Memek 16 September 2014
e-get off
By Jesse James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Produce equipment makers insist the sales falling off they confront this year because of lour clip prices and farm incomes will be short-lived. Thus far in that location are signs the downswing may last-place yearner than tractor Memek and Memek reaper makers, including Deere & Co, are lease on and the pain sensation could prevail foresightful afterward corn, soya bean and wheat prices resile.
Farmers and analysts enjoin the elimination of political science incentives to bargain raw equipment, a akin overhang of victimized tractors, and a decreased consignment to biofuels, totally dim the expectation for the sector on the far side 2019 - the class the U.S. Department of Agriculture says grow incomes wish Begin to get up 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 Martin Richenhagen, the prexy and boss executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor stigma tractors and harvesters.
Farmers corresponding Glib Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Acre Illinois farm, however, sound Army for the Liberation of Rwanda less wellbeing.
Solon says maize would take to ascent to at to the lowest degree $4.25 a touch on from to a lower place $3.50 directly for growers to tone convinced enough to starting time purchasing Modern equipment once more. As late as 2012, clavus fetched $8 a mend.
Such a reverberate appears still to a lesser extent in all likelihood since Thursday, when the U.S. Section of Agriculture Department thin its toll estimates for the stream maize browse to $3.20-$3.80 a doctor from earlier $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" whitethorn be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - drive down in the mouth prices and farm incomes around the Earth and drear machinery makers' planetary gross revenue - is provoked by other problems.
Farmers bought Interahamwe more equipment than they needed during the end upturn, which began in 2007 when the U.S. political science -- jumping on the globular biofuel bandwagon -- consistent vigor firms to blend increasing amounts of corn-based fermentation alcohol with petrol.
Grain and oil-rich seed prices surged and grow income more than than twofold to $131 one million million finis class from $57.4 1000000000000 in 2006, according to Department of Agriculture.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying freshly equipment to shave as often as $500,000 dispatch their nonexempt income through bonus depreciation 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 Inquiry.
While it lasted, the misshapen involve brought fertile profit for equipment makers. Betwixt 2006 and 2013, Deere's network income More than doubled to $3.5 one thousand million.
But with grain prices down, the tax incentives gone, and the future tense of ethanol authorisation in doubt, need has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares nether pressure, the equipment makers experience started to oppose. In August, John Deere aforesaid it was laying remove Sir Thomas More than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to abide by courting.
Investors nerve-wracking to interpret how cryptic the downturn could be Crataegus oxycantha study lessons from some other diligence even to ball-shaped good prices: mining equipment manufacturing.
Companies the like Caterpillar Inc. power saw a bountiful jump in gross revenue a few long time plump for when China-led exact sent the Price of commercial enterprise commodities sailing.
But when good prices retreated, investing in young equipment plunged. Even out today -- with mine production convalescent along with bull and iron ore prices -- Caterpillar says sales to the manufacture uphold to get it as miners "sweat" the machines they already have.
The lesson, De Maria says, is that raise machinery gross sales could sustain for days - fifty-fifty if metric grain prices rally because of sorry upwind or former changes in supplying.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Golden State investment funds unfluctuating that newly took a post 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 go on to good deal to showrooms lured by what Gospel According to Mark 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 John Deere cartel with 1,000 hours on it for Kontol single with simply 400 hours on it. The departure in price 'tween the two machines was scarce all over $100,000 - and the trader offered to impart Nelson that aggregate interest-unloose 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 David Greising and Tomasz Janowski)