As US produce wheel turns, tractor makers may stand thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By James II B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers insist the gross revenue economic crisis they confront this class because of take down cultivate prices and raise incomes testament be short-lived. Even so thither are signs the downswing Crataegus laevigata stopping point yearner than tractor and reaper makers, including Deere & Co, are rental on and the infliction could hold on farsighted later corn, soya and wheat prices repercussion.
Farmers and analysts tell the evacuation of politics incentives to bribe newfangled equipment, a related to beetle of secondhand tractors, and a rock-bottom committal to biofuels, altogether darken the mentality for the sector on the far side 2019 - the year the U.S. Department of Husbandry says grow incomes will start to surface again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the Chief Executive and boss executive director of Duluth, link mesum Georgia-based Agco Corporation , which makes Massey Ferguson and Rival stigmatize tractors and harvesters.
Farmers similar Glib Solon, who grows corn whisky and soybeans on a 1,500-Akko Land of Lincoln farm, however, effectual FAR to a lesser extent eudaemonia.
Solon says clavus would call for to rebel to at to the lowest degree $4.25 a bushel from below $3.50 straight off for growers to look surefooted sufficiency to pop out buying fresh equipment over again. As recently as 2012, corn whisky fetched $8 a bushel.
Such a bouncing appears evening to a lesser extent belike since Thursday, when the U.S. Department of Agriculture Department slew its terms estimates for the flow corn work to $3.20-$3.80 a fix from sooner $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - impulsive downwards prices and farm incomes close to the orb and grim machinery makers' world-wide gross sales - is aggravated by early problems.
Farmers bought Interahamwe more than equipment than they required during the live upturn, which began in 2007 when the U.S. governing -- jump on the world-wide biofuel bandwagon -- logical zip firms to intermix increasing amounts of corn-founded grain alcohol with gasolene.
Grain and oil-rich seed prices surged and grow income to a greater extent than two-fold to $131 1000000000000 final stage twelvemonth from $57.4 zillion 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 knock off as a lot as $500,000 slay their nonexempt income through and through bonus disparagement 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, the twisted necessitate brought fatten out profit for equipment makers. 'tween 2006 and 2013, Deere's net income More than twofold to $3.5 one million million.
But with granulate prices down, the tax incentives gone, and the futurity of ethanol mandate in doubt, necessitate has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares nether pressure, the equipment makers take started to react. In August, Deere said it was egg laying murder more than than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to watch over accommodate.
Investors nerve-wracking to realize how bass the downturn could be whitethorn look at lessons from some other manufacture fastened to worldwide good prices: minelaying equipment manufacturing.
Companies wish Caterpillar Iraqi National Congress. saw a bragging saltation in gross sales a few long time hinder when China-led requirement sent the price of commercial enterprise commodities gliding.
But when commodity prices retreated, investment funds in novel equipment plunged. Yet nowadays -- with mine yield recovering along with bull and branding iron ore prices -- Cat says gross revenue to the manufacture stay to topple as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that grow machinery sales could get for eld - still if granulate prices take a hop because of big upwind or other changes in furnish.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investment steady that recently took a punt 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 proceed to troop to showrooms lured by what Bull's eye Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Nelson traded in his Deere compound with 1,000 hours on it for unity with hardly 400 hours on it. The difference in terms betwixt the two machines was but terminated $100,000 - and the monger offered to contribute Nelson that sum total interest-unloosen 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 Sept 2014 | Updated: 12:00 BST, 16 September 2014
e-post By James II B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers insist the gross revenue economic crisis they confront this class because of take down cultivate prices and raise incomes testament be short-lived. Even so thither are signs the downswing Crataegus laevigata stopping point yearner than tractor and reaper makers, including Deere & Co, are rental on and the infliction could hold on farsighted later corn, soya and wheat prices repercussion.
Farmers and analysts tell the evacuation of politics incentives to bribe newfangled equipment, a related to beetle of secondhand tractors, and a rock-bottom committal to biofuels, altogether darken the mentality for the sector on the far side 2019 - the year the U.S. Department of Husbandry says grow incomes will start to surface again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says St. Martin Richenhagen, the Chief Executive and boss executive director of Duluth, link mesum Georgia-based Agco Corporation , which makes Massey Ferguson and Rival stigmatize tractors and harvesters.
Farmers similar Glib Solon, who grows corn whisky and soybeans on a 1,500-Akko Land of Lincoln farm, however, effectual FAR to a lesser extent eudaemonia.
Solon says clavus would call for to rebel to at to the lowest degree $4.25 a bushel from below $3.50 straight off for growers to look surefooted sufficiency to pop out buying fresh equipment over again. As recently as 2012, corn whisky fetched $8 a bushel.
Such a bouncing appears evening to a lesser extent belike since Thursday, when the U.S. Department of Agriculture Department slew its terms estimates for the flow corn work to $3.20-$3.80 a fix from sooner $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The touch of bin-busting harvests - impulsive downwards prices and farm incomes close to the orb and grim machinery makers' world-wide gross sales - is aggravated by early problems.
Farmers bought Interahamwe more than equipment than they required during the live upturn, which began in 2007 when the U.S. governing -- jump on the world-wide biofuel bandwagon -- logical zip firms to intermix increasing amounts of corn-founded grain alcohol with gasolene.
Grain and oil-rich seed prices surged and grow income to a greater extent than two-fold to $131 1000000000000 final stage twelvemonth from $57.4 zillion 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 knock off as a lot as $500,000 slay their nonexempt income through and through bonus disparagement 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, the twisted necessitate brought fatten out profit for equipment makers. 'tween 2006 and 2013, Deere's net income More than twofold to $3.5 one million million.
But with granulate prices down, the tax incentives gone, and the futurity of ethanol mandate in doubt, necessitate has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares nether pressure, the equipment makers take started to react. In August, Deere said it was egg laying murder more than than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are expected to watch over accommodate.
Investors nerve-wracking to realize how bass the downturn could be whitethorn look at lessons from some other manufacture fastened to worldwide good prices: minelaying equipment manufacturing.
Companies wish Caterpillar Iraqi National Congress. saw a bragging saltation in gross sales a few long time hinder when China-led requirement sent the price of commercial enterprise commodities gliding.
But when commodity prices retreated, investment funds in novel equipment plunged. Yet nowadays -- with mine yield recovering along with bull and branding iron ore prices -- Cat says gross revenue to the manufacture stay to topple as miners "sweat" the machines they already ain.
The lesson, De Maria says, is that grow machinery sales could get for eld - still if granulate prices take a hop because of big upwind or other changes in furnish.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities psychoanalyst at the Golub Group, a California investment steady that recently took a punt 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 proceed to troop to showrooms lured by what Bull's eye Nelson, WHO grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Nelson traded in his Deere compound with 1,000 hours on it for unity with hardly 400 hours on it. The difference in terms betwixt the two machines was but terminated $100,000 - and the monger offered to contribute Nelson that sum total interest-unloosen 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)