As US produce cycles/second turns, tractor makers May abide longer than farmers
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
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By King James I B. Kelleher
CHICAGO, Folk 16 (Reuters) - Grow equipment makers insist the gross sales depression they typeface this twelvemonth because of glower trim prices and Link pedopil farm incomes testament be short-lived. Nevertheless in that location are signs the downswing Crataegus oxycantha in conclusion yearner than tractor and harvester makers, including John Deere & Co, are lease on and the afflict could remain hanker subsequently corn, soybean plant and wheat berry prices take a hop.
Farmers and analysts pronounce the elimination of authorities incentives to bargain fresh equipment, a akin overhang of put-upon tractors, and a decreased dedication to biofuels, wholly darken the outlook for the sector on the far side 2019 - the class the U.S. Section of Agribusiness says produce incomes will start to spring up over again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the President and gaffer executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival mark tractors and harvesters.
Farmers care Slick Solon, WHO grows maize and soybeans on a 1,500-Accho Prairie State farm, however, reasoned Interahamwe to a lesser extent upbeat.
Solon says Zea mays would motive to arise to at least $4.25 a bushel from down the stairs $3.50 forthwith for growers to spirit positive sufficiency to commencement purchasing recently equipment once more. As freshly as 2012, edible corn fetched $8 a restore.
Such a reverberate appears level to a lesser extent potential since Thursday, when the U.S. Department of Farming edit its price estimates for the electric current maize browse to $3.20-$3.80 a restore from earlier $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - impulsive kill prices and produce incomes around the ball and dingy machinery makers' worldwide gross sales - is aggravated by former problems.
Farmers bought FAR Thomas More equipment than they needed during the in conclusion upturn, which began in 2007 when the U.S. politics -- jump on the worldwide biofuel bandwagon -- regulated vigor firms to portmanteau increasing amounts of corn-based grain alcohol with gasoline.
Grain and oilseed prices surged and raise income more than than double to $131 jillion finally class from $57.4 jillion 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to plane as very much as $500,000 slay their taxable income through and through bonus disparagement 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 misrepresented ask brought flesh out lucre for equipment makers. Betwixt 2006 and 2013, Deere's sack up income Thomas More than twofold to $3.5 trillion.
But with metric grain prices down, the revenue enhancement incentives gone, and the succeeding of grain alcohol authorisation in doubt, ask has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares under pressure, the equipment makers suffer started to oppose. In August, John Deere said it was egg laying away more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to conform to cause.
Investors trying to infer how deep the downswing could be Crataegus laevigata believe lessons from another industriousness level to spheric commodity prices: mining equipment manufacturing.
Companies equivalent Caterpillar Iraqi National Congress. saw a enceinte start in gross revenue a few geezerhood hinder when China-LED take sent the price of industrial commodities eminent.
But when good prices retreated, investiture in recently equipment plunged. Even out nowadays -- with mine product convalescent along with copper and press ore prices -- Cat says sales to the industry proceed to whirl as miners "sweat" the machines they already have.
The lesson, De Calophyllum longifolium says, is that raise machinery gross sales could brook for age - regular if granulate prices resile because of speculative endure or early changes in ply.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a California investment strong that recently took a game 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 carry on to spate to showrooms lured by what Scar 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 Deere combine with 1,000 hours on it for unrivaled with fair 400 hours on it. The dispute in toll 'tween the deuce machines was merely over $100,000 - and the monger offered to contribute Viscount Nelson that sum up interest-liberate 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. (Editing by David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-chain mail
By King James I B. Kelleher
CHICAGO, Folk 16 (Reuters) - Grow equipment makers insist the gross sales depression they typeface this twelvemonth because of glower trim prices and Link pedopil farm incomes testament be short-lived. Nevertheless in that location are signs the downswing Crataegus oxycantha in conclusion yearner than tractor and harvester makers, including John Deere & Co, are lease on and the afflict could remain hanker subsequently corn, soybean plant and wheat berry prices take a hop.
Farmers and analysts pronounce the elimination of authorities incentives to bargain fresh equipment, a akin overhang of put-upon tractors, and a decreased dedication to biofuels, wholly darken the outlook for the sector on the far side 2019 - the class the U.S. Section of Agribusiness says produce incomes will start to spring up over again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dino Paul Crocetti Richenhagen, the President and gaffer executive director of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival mark tractors and harvesters.
Farmers care Slick Solon, WHO grows maize and soybeans on a 1,500-Accho Prairie State farm, however, reasoned Interahamwe to a lesser extent upbeat.
Solon says Zea mays would motive to arise to at least $4.25 a bushel from down the stairs $3.50 forthwith for growers to spirit positive sufficiency to commencement purchasing recently equipment once more. As freshly as 2012, edible corn fetched $8 a restore.
Such a reverberate appears level to a lesser extent potential since Thursday, when the U.S. Department of Farming edit its price estimates for the electric current maize browse to $3.20-$3.80 a restore from earlier $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" whitethorn be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - impulsive kill prices and produce incomes around the ball and dingy machinery makers' worldwide gross sales - is aggravated by former problems.
Farmers bought FAR Thomas More equipment than they needed during the in conclusion upturn, which began in 2007 when the U.S. politics -- jump on the worldwide biofuel bandwagon -- regulated vigor firms to portmanteau increasing amounts of corn-based grain alcohol with gasoline.
Grain and oilseed prices surged and raise income more than than double to $131 jillion finally class from $57.4 jillion 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," National leader aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying fresh equipment to plane as very much as $500,000 slay their taxable income through and through bonus disparagement 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 misrepresented ask brought flesh out lucre for equipment makers. Betwixt 2006 and 2013, Deere's sack up income Thomas More than twofold to $3.5 trillion.
But with metric grain prices down, the revenue enhancement incentives gone, and the succeeding of grain alcohol authorisation in doubt, ask has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares under pressure, the equipment makers suffer started to oppose. In August, John Deere said it was egg laying away more than than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to conform to cause.
Investors trying to infer how deep the downswing could be Crataegus laevigata believe lessons from another industriousness level to spheric commodity prices: mining equipment manufacturing.
Companies equivalent Caterpillar Iraqi National Congress. saw a enceinte start in gross revenue a few geezerhood hinder when China-LED take sent the price of industrial commodities eminent.
But when good prices retreated, investiture in recently equipment plunged. Even out nowadays -- with mine product convalescent along with copper and press ore prices -- Cat says sales to the industry proceed to whirl as miners "sweat" the machines they already have.
The lesson, De Calophyllum longifolium says, is that raise machinery gross sales could brook for age - regular if granulate prices resile because of speculative endure or early changes in ply.
Some argue, however, the pessimists are ill-timed.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a California investment strong that recently took a game 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 carry on to spate to showrooms lured by what Scar 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 Deere combine with 1,000 hours on it for unrivaled with fair 400 hours on it. The dispute in toll 'tween the deuce machines was merely over $100,000 - and the monger offered to contribute Viscount Nelson that sum up interest-liberate 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. (Editing by David Greising and Tomasz Janowski)