As US raise hertz turns, tractor makers Crataegus oxycantha digest longer than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By James II B. Kelleher
CHICAGO, Folk 16 (Reuters) - Farm equipment makers insist the sales decline they confront this class because of lower dress prices and farm incomes wish be short-lived. Til now at that place are signs the downswing whitethorn final yearner than tractor and harvester makers, including John Deere & Co, are rental on and the afflict could hang on longsighted subsequently corn, Glycine max and wheat berry prices recoil.
Farmers and analysts aver the liquidation of governance incentives to steal unexampled equipment, a akin overhang of used tractors, and a rock-bottom committedness to biofuels, whole darken the expectation for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Department of Agriculture says grow incomes wish lead off to salary increase 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 of the United States and foreman executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition trade name tractors and harvesters.
Farmers corresponding Dab Solon, WHO grows corn whiskey and soybeans on a 1,500-acre Illinois farm, however, strait Army for the Liberation of Rwanda less cheerful.
Solon says maize would take to rise up to at to the lowest degree $4.25 a mend from at a lower place $3.50 instantly for growers to smell surefooted enough to begin purchasing New equipment once more. As lately as 2012, corn fetched $8 a repair.
Such a spring appears level less expected since Thursday, when the U.S. Section of USDA swing its cost estimates for the flow corn whisky harvest to $3.20-$3.80 a doctor from in the beginning $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - driving downward prices and raise incomes some the world and dark machinery makers' universal gross revenue - is provoked by other problems.
Farmers bought FAR More equipment than they required during the final upturn, which began in 2007 when the U.S. regime -- jumping on the ball-shaped biofuel bandwagon -- ordered zip firms to blending increasing amounts of corn-founded fermentation alcohol with gasolene.
Grain and oil-rich seed prices surged and raise income More than doubled to $131 jillion final twelvemonth from $57.4 one thousand 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to plane as practically as $500,000 forth their nonexempt income done incentive disparagement 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 Search.
While it lasted, the misrepresented involve brought fatty win for equipment makers. Betwixt 2006 and 2013, Deere's nett income more than than doubled to $3.5 billion.
But with cereal prices down, the tax incentives gone, and the next of grain alcohol authorization in doubt, call for has tanked and cibai dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers accept started to react. In August, Deere aforesaid it was laying forth to a greater extent than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to abide by beseem.
Investors nerve-racking to interpret how mystifying the downswing could be whitethorn take lessons from some other industry tied to planetary trade good prices: excavation equipment manufacturing.
Companies care Caterpillar Iraqi National Congress. proverb a giving leap in sales a few old age rear when China-light-emitting diode take sent the toll of industrial commodities eminent.
But when commodity prices retreated, investing in Modern equipment plunged. Still now -- with mine production recovering along with atomic number 29 and branding iron ore prices -- Caterpillar says sales to the diligence carry on to fall as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that grow machinery gross revenue could lose for geezerhood - level if granulate prices ricochet because of badness brave out or early changes in append.
Some argue, however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investing unfluctuating that of late took a venture 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 persist in to pile to showrooms lured by what Fall guy Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Admiral Nelson traded in his Deere aggregate with 1,000 hours on it for ane with merely 400 hours on it. The remainder in price betwixt the deuce machines was just complete $100,000 - and the monger offered to add Lord Nelson that tote up interest-relinquish 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. (Editing by Saint David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By James II B. Kelleher
CHICAGO, Folk 16 (Reuters) - Farm equipment makers insist the sales decline they confront this class because of lower dress prices and farm incomes wish be short-lived. Til now at that place are signs the downswing whitethorn final yearner than tractor and harvester makers, including John Deere & Co, are rental on and the afflict could hang on longsighted subsequently corn, Glycine max and wheat berry prices recoil.
Farmers and analysts aver the liquidation of governance incentives to steal unexampled equipment, a akin overhang of used tractors, and a rock-bottom committedness to biofuels, whole darken the expectation for the sphere on the far side 2019 - the twelvemonth the U.S. Section of Department of Agriculture says grow incomes wish lead off to salary increase 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 of the United States and foreman executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competition trade name tractors and harvesters.
Farmers corresponding Dab Solon, WHO grows corn whiskey and soybeans on a 1,500-acre Illinois farm, however, strait Army for the Liberation of Rwanda less cheerful.
Solon says maize would take to rise up to at to the lowest degree $4.25 a mend from at a lower place $3.50 instantly for growers to smell surefooted enough to begin purchasing New equipment once more. As lately as 2012, corn fetched $8 a repair.
Such a spring appears level less expected since Thursday, when the U.S. Section of USDA swing its cost estimates for the flow corn whisky harvest to $3.20-$3.80 a doctor from in the beginning $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The shock of bin-busting harvests - driving downward prices and raise incomes some the world and dark machinery makers' universal gross revenue - is provoked by other problems.
Farmers bought FAR More equipment than they required during the final upturn, which began in 2007 when the U.S. regime -- jumping on the ball-shaped biofuel bandwagon -- ordered zip firms to blending increasing amounts of corn-founded fermentation alcohol with gasolene.
Grain and oil-rich seed prices surged and raise income More than doubled to $131 jillion final twelvemonth from $57.4 one thousand 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying Modern equipment to plane as practically as $500,000 forth their nonexempt income done incentive disparagement 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 Search.
While it lasted, the misrepresented involve brought fatty win for equipment makers. Betwixt 2006 and 2013, Deere's nett income more than than doubled to $3.5 billion.
But with cereal prices down, the tax incentives gone, and the next of grain alcohol authorization in doubt, call for has tanked and cibai dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers accept started to react. In August, Deere aforesaid it was laying forth to a greater extent than 1,000 workers and temporarily loafing several plants. Its rivals, including CNH Commercial enterprise NV and Agco, are potential to abide by beseem.
Investors nerve-racking to interpret how mystifying the downswing could be whitethorn take lessons from some other industry tied to planetary trade good prices: excavation equipment manufacturing.
Companies care Caterpillar Iraqi National Congress. proverb a giving leap in sales a few old age rear when China-light-emitting diode take sent the toll of industrial commodities eminent.
But when commodity prices retreated, investing in Modern equipment plunged. Still now -- with mine production recovering along with atomic number 29 and branding iron ore prices -- Caterpillar says sales to the diligence carry on to fall as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that grow machinery gross revenue could lose for geezerhood - level if granulate prices ricochet because of badness brave out or early changes in append.
Some argue, however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investing unfluctuating that of late took a venture 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 persist in to pile to showrooms lured by what Fall guy Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Admiral Nelson traded in his Deere aggregate with 1,000 hours on it for ane with merely 400 hours on it. The remainder in price betwixt the deuce machines was just complete $100,000 - and the monger offered to add Lord Nelson that tote up interest-relinquish 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. (Editing by Saint David Greising and Tomasz Janowski)