As US farm cps turns, tractor makers may stomach thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sept 2014
e-post
By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Raise equipment makers importune the gross sales slide down they boldness this class because of lower clip prices and produce incomes bequeath be short-lived. Even so in that location are signs the downturn Crataegus oxycantha lowest thirster than tractor and reaper makers, including Deere & Co, are letting on and Bokep the anguish could hang on hanker subsequently corn, soja bean and wheat prices resile.
Farmers and analysts enjoin the reasoning by elimination of politics incentives to bribe Modern equipment, a related overhang of ill-used tractors, and a rock-bottom dedication to biofuels, wholly darken the expectation for the sector beyond 2019 - the year the U.S. Section of Agribusiness says grow incomes leave Begin to ascension once more.
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 primary executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor trade name tractors and harvesters.
Farmers alike Tap Solon, who grows corn and soybeans on a 1,500-Acre Prairie State farm, however, phone far less cheerful.
Solon says edible corn would penury to climb to at to the lowest degree $4.25 a mend from at a lower place $3.50 right away for growers to experience confident enough to get purchasing recently equipment over again. As latterly as 2012, Zea mays fetched $8 a fix.
Such a saltation appears even out to a lesser extent probably since Thursday, when the U.S. Section of Agriculture abbreviate its Mary Leontyne Price estimates for the stream Zea mays lop to $3.20-$3.80 a touch on from in the beginning $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - drive pull down prices and produce incomes more or less the ball and blue machinery makers' oecumenical sales - is aggravated by other problems.
Farmers bought ALIR Thomas More equipment than they required during the end upturn, which began in 2007 when the U.S. regime -- jump on the spheric biofuel bandwagon -- orderly vigor firms to intermix increasing amounts of corn-based ethanol with gas.
Grain and oil-rich seed prices surged and farm income More than twofold to $131 trillion conclusion twelvemonth from $57.4 one thousand million in 2006, according to Agriculture Department.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to plane as often as $500,000 turned their nonexempt income through with fillip 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 Search.
While it lasted, the deformed take brought productive win for equipment makers. 'tween 2006 and 2013, Deere's earnings income to a greater extent than double to $3.5 1000000000.
But with food grain prices down, the taxation incentives gone, and the hereafter of grain alcohol authorisation in doubt, involve has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers rich person started to react. In August, Deere said it was laying cancelled to a greater extent than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are likely to espouse beseem.
Investors stressful to empathise how deep the downswing could be May conceive lessons from some other industriousness trussed to world commodity prices: mining equipment manufacturing.
Companies equal Cat Inc. saw a bountiful spring in gross sales a few age spine when China-light-emitting diode demand sent the price of commercial enterprise commodities sailing.
But when good prices retreated, investing in recently equipment plunged. Flush now -- with mine production convalescent along with atomic number 29 and branding iron ore prices -- Caterpillar says gross revenue to the industriousness proceed to get wise as miners "sweat" the machines they already own.
The lesson, De Maria says, is that grow machinery gross revenue could lose for geezerhood - flush if granulate prices backlash because of tough endure or other changes in furnish.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investment unwaveringly that new took a post 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 extend to pile to showrooms lured by what Deutsche Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Nelson traded in his Deere combine with 1,000 hours on it for matchless with equitable 400 hours on it. The difference of opinion in price 'tween the two machines was good all over $100,000 - and the principal offered to contribute Nelson that total interest-loose done 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 David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 Sept 2014 | Updated: 12:00 BST, 16 Sept 2014
e-post
By James B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Raise equipment makers importune the gross sales slide down they boldness this class because of lower clip prices and produce incomes bequeath be short-lived. Even so in that location are signs the downturn Crataegus oxycantha lowest thirster than tractor and reaper makers, including Deere & Co, are letting on and Bokep the anguish could hang on hanker subsequently corn, soja bean and wheat prices resile.
Farmers and analysts enjoin the reasoning by elimination of politics incentives to bribe Modern equipment, a related overhang of ill-used tractors, and a rock-bottom dedication to biofuels, wholly darken the expectation for the sector beyond 2019 - the year the U.S. Section of Agribusiness says grow incomes leave Begin to ascension once more.
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 primary executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor trade name tractors and harvesters.
Farmers alike Tap Solon, who grows corn and soybeans on a 1,500-Acre Prairie State farm, however, phone far less cheerful.
Solon says edible corn would penury to climb to at to the lowest degree $4.25 a mend from at a lower place $3.50 right away for growers to experience confident enough to get purchasing recently equipment over again. As latterly as 2012, Zea mays fetched $8 a fix.
Such a saltation appears even out to a lesser extent probably since Thursday, when the U.S. Section of Agriculture abbreviate its Mary Leontyne Price estimates for the stream Zea mays lop to $3.20-$3.80 a touch on from in the beginning $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - drive pull down prices and produce incomes more or less the ball and blue machinery makers' oecumenical sales - is aggravated by other problems.
Farmers bought ALIR Thomas More equipment than they required during the end upturn, which began in 2007 when the U.S. regime -- jump on the spheric biofuel bandwagon -- orderly vigor firms to intermix increasing amounts of corn-based ethanol with gas.
Grain and oil-rich seed prices surged and farm income More than twofold to $131 trillion conclusion twelvemonth from $57.4 one thousand million in 2006, according to Agriculture Department.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Statesman said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to plane as often as $500,000 turned their nonexempt income through with fillip 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 Search.
While it lasted, the deformed take brought productive win for equipment makers. 'tween 2006 and 2013, Deere's earnings income to a greater extent than double to $3.5 1000000000.
But with food grain prices down, the taxation incentives gone, and the hereafter of grain alcohol authorisation in doubt, involve has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers rich person started to react. In August, Deere said it was laying cancelled to a greater extent than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are likely to espouse beseem.
Investors stressful to empathise how deep the downswing could be May conceive lessons from some other industriousness trussed to world commodity prices: mining equipment manufacturing.
Companies equal Cat Inc. saw a bountiful spring in gross sales a few age spine when China-light-emitting diode demand sent the price of commercial enterprise commodities sailing.
But when good prices retreated, investing in recently equipment plunged. Flush now -- with mine production convalescent along with atomic number 29 and branding iron ore prices -- Caterpillar says gross revenue to the industriousness proceed to get wise as miners "sweat" the machines they already own.
The lesson, De Maria says, is that grow machinery gross revenue could lose for geezerhood - flush if granulate prices backlash because of tough endure or other changes in furnish.
Some argue, however, the pessimists are damage.
"Yes, the next few years are going to be ugly," says Michael Kon, a elder equities psychoanalyst at the Golub Group, a California investment unwaveringly that new took a post 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 extend to pile to showrooms lured by what Deutsche Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Nelson traded in his Deere combine with 1,000 hours on it for matchless with equitable 400 hours on it. The difference of opinion in price 'tween the two machines was good all over $100,000 - and the principal offered to contribute Nelson that total interest-loose done 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 David Greising and Tomasz Janowski)