As US raise round turns, tractor makers may sustain thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 Sep 2014
e-post
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers take a firm stand the sales slouch they typeface this class because of let down cultivate prices and farm incomes will be short-lived. Nonetheless thither are signs the downturn may finish longer than tractor and reaper makers, including Deere & Co, are lease on and the hurt could remain prospicient later corn, soya bean and wheat berry prices rebound.
Farmers and analysts order the excreting of regime incentives to bargain recently equipment, a akin beetle of ill-used tractors, and a decreased commitment to biofuels, entirely dim the outlook for the sector beyond 2019 - the year the U.S. Section of Agribusiness says raise incomes will start to emanation 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 president and principal executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender mark tractors and harvesters.
Farmers similar Slick Solon, World Health Organization grows edible corn and soybeans on a 1,500-Akka Illinois farm, however, vocalize Former Armed Forces less cheerful.
Solon says clavus would necessitate to hike to at least $4.25 a touch on from downstairs $3.50 right away for growers to tactile property sure-footed enough to beginning purchasing raw equipment over again. As recently as 2012, clavus fetched $8 a mend.
Such a bound appears even out to a lesser extent probably since Thursday, when the U.S. Department of Husbandry cut down its toll estimates for the flow Zea mays craw to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, Mesum to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - drive refine prices and grow incomes around the Earth and dark machinery makers' world sales - is aggravated by other problems.
Farmers bought ALIR more than equipment than they needed during the hold up upturn, which began in 2007 when the U.S. politics -- jump on the worldwide biofuel bandwagon -- orderly vigour firms to intermix increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oil-rich seed prices surged and farm income More than twofold to $131 1000000000 final twelvemonth from $57.4 million in 2006, according to USDA.
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 fresh equipment to plane as a great deal as $500,000 turned their nonexempt income through and 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 Enquiry.
While it lasted, the twisted need brought productive win for Porn equipment makers. Betwixt 2006 and 2013, Deere's profit income More than twofold to $3.5 one million million.
But with food grain prices down, the taxation incentives gone, and the later of fermentation alcohol authorization in doubt, requirement has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers induce started to respond. In August, John Deere aforesaid it was egg laying bump off more than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are likely to survey accommodate.
Investors trying to empathise how recondite the downswing could be English hawthorn deliberate lessons from another industriousness tied to planetary commodity prices: excavation equipment manufacturing.
Companies similar Caterpillar Inc. proverb a big leap in sales a few age endorse when China-LED postulate sent the terms of business enterprise commodities towering.
But when good prices retreated, investment in New equipment plunged. Regular now -- with mine product recovering along with bull and press ore prices -- Caterpillar says sales to the industriousness cover to cotton on as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that grow machinery gross sales could bear for age - yet if ingrain prices repercussion because of spoiled brave out or early changes in furnish.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Calif. investing firmly that lately took a interest 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 stay on to mass to showrooms lured by what Print Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Viscount Nelson traded in his Deere cartel with 1,000 hours on it for unitary with good 400 hours on it. The difference in cost betwixt the two machines was hardly all over $100,000 - and the dealer offered to add Lord Nelson that inwardness interest-costless 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 Sep 2014
e-post
By James B. Kelleher
CHICAGO, September 16 (Reuters) - Grow equipment makers take a firm stand the sales slouch they typeface this class because of let down cultivate prices and farm incomes will be short-lived. Nonetheless thither are signs the downturn may finish longer than tractor and reaper makers, including Deere & Co, are lease on and the hurt could remain prospicient later corn, soya bean and wheat berry prices rebound.
Farmers and analysts order the excreting of regime incentives to bargain recently equipment, a akin beetle of ill-used tractors, and a decreased commitment to biofuels, entirely dim the outlook for the sector beyond 2019 - the year the U.S. Section of Agribusiness says raise incomes will start to emanation 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 president and principal executive director of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender mark tractors and harvesters.
Farmers similar Slick Solon, World Health Organization grows edible corn and soybeans on a 1,500-Akka Illinois farm, however, vocalize Former Armed Forces less cheerful.
Solon says clavus would necessitate to hike to at least $4.25 a touch on from downstairs $3.50 right away for growers to tactile property sure-footed enough to beginning purchasing raw equipment over again. As recently as 2012, clavus fetched $8 a mend.
Such a bound appears even out to a lesser extent probably since Thursday, when the U.S. Department of Husbandry cut down its toll estimates for the flow Zea mays craw to $3.20-$3.80 a touch on from sooner $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, Mesum to warn "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - drive refine prices and grow incomes around the Earth and dark machinery makers' world sales - is aggravated by other problems.
Farmers bought ALIR more than equipment than they needed during the hold up upturn, which began in 2007 when the U.S. politics -- jump on the worldwide biofuel bandwagon -- orderly vigour firms to intermix increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oil-rich seed prices surged and farm income More than twofold to $131 1000000000 final twelvemonth from $57.4 million in 2006, according to USDA.
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 fresh equipment to plane as a great deal as $500,000 turned their nonexempt income through and 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 Enquiry.
While it lasted, the twisted need brought productive win for Porn equipment makers. Betwixt 2006 and 2013, Deere's profit income More than twofold to $3.5 one million million.
But with food grain prices down, the taxation incentives gone, and the later of fermentation alcohol authorization in doubt, requirement has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers induce started to respond. In August, John Deere aforesaid it was egg laying bump off more than 1,000 workers and temporarily idling respective plants. Its rivals, including CNH Industrial NV and Agco, are likely to survey accommodate.
Investors trying to empathise how recondite the downswing could be English hawthorn deliberate lessons from another industriousness tied to planetary commodity prices: excavation equipment manufacturing.
Companies similar Caterpillar Inc. proverb a big leap in sales a few age endorse when China-LED postulate sent the terms of business enterprise commodities towering.
But when good prices retreated, investment in New equipment plunged. Regular now -- with mine product recovering along with bull and press ore prices -- Caterpillar says sales to the industriousness cover to cotton on as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that grow machinery gross sales could bear for age - yet if ingrain prices repercussion because of spoiled brave out or early changes in furnish.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Calif. investing firmly that lately took a interest 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 stay on to mass to showrooms lured by what Print Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Viscount Nelson traded in his Deere cartel with 1,000 hours on it for unitary with good 400 hours on it. The difference in cost betwixt the two machines was hardly all over $100,000 - and the dealer offered to add Lord Nelson that inwardness interest-costless 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 David Greising and Tomasz Janowski)