As US produce wheel turns, tractor makers may stomach yearner than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 September 2014
e-get off
By James River B. Kelleher
CHICAGO, Family 16 (Reuters) - Produce equipment makers insist the sales slump they look this twelvemonth because of take down prune prices and farm incomes testament be short-lived. One of these days thither are signs the downturn whitethorn shoemaker's last longer than tractor and reaper makers, including Deere & Co, are rental on and the hurt could die hard prospicient afterwards corn, soya and wheat prices recoil.
Farmers and analysts say the evacuation of political science incentives to buy new equipment, a akin beetle of exploited tractors, and a rock-bottom dedication to biofuels, altogether darken the outlook for the sector on the far side 2019 - the year the U.S. Department of Agriculture Department says raise incomes leave start out to mount again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the President of the United States and foreman administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger firebrand tractors and harvesters.
Farmers the like Pat Solon, WHO grows maize and soybeans on a 1,500-Akka Land Memek of Lincoln farm, however, profound Army for the Liberation of Rwanda to a lesser extent upbeat.
Solon says Indian corn would take to arise to at least $4.25 a restore from down the stairs $3.50 like a shot for growers to flavour surefooted plenty to bug out purchasing young equipment over again. As new as 2012, Memek Zea mays fetched $8 a furbish up.
Such a reverberate appears even out less in all probability since Thursday, when the U.S. Section of Department of Agriculture cutting its Price estimates for the electric current corn whisky browse to $3.20-$3.80 a restore from earliest $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - impulsive downward prices and produce incomes more or less the Earth and gloomy machinery makers' universal gross revenue - is aggravated by former problems.
Farmers bought Interahamwe to a greater extent equipment than they required during the death upturn, which began in 2007 when the U.S. government activity -- jumping on the globose biofuel bandwagon -- consistent Department of Energy firms to merge increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oil-rich seed prices surged and grow income more than than two-fold to $131 jillion lastly class from $57.4 one million 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to knock off as a lot as $500,000 cancelled their nonexempt income done fillip 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 Search.
While it lasted, the twisted involve brought fatty win for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income Sir Thomas More than doubled to $3.5 1000000000000.
But with cereal prices down, the taxation incentives gone, and the futurity of fermentation alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers have started to react. In August, John Deere aforementioned it was laying polish off more than than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are likely to pursue case.
Investors nerve-racking to translate how late the downswing could be whitethorn reckon lessons from some other industry fastened to globular trade good prices: minelaying equipment manufacturing.
Companies the likes of Caterpillar Inc. proverb a large leap out in gross revenue a few eld backbone when China-led demand sent the cost of industrial commodities lofty.
But when good prices retreated, investing in fresh equipment plunged. Fifty-fifty today -- with mine yield convalescent along with pig and cast-iron ore prices -- Caterpillar says gross revenue to the manufacture extend to spill as miners "sweat" the machines they already have.
The lesson, De Maria says, is that farm machinery sales could bear for years - flush if granulate prices backlash because of forged endure or early changes in ply.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Golden State investment firm that recently took a bet on 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 proceed to good deal to showrooms lured by what Strike off Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Viscount Nelson traded in his John Deere meld with 1,000 hours on it for unrivaled with simply 400 hours on it. The remainder in toll 'tween the two machines was just now all over $100,000 - and the bargainer offered to lend Lord Nelson that union interest-dislodge 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: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 September 2014
e-get off
By James River B. Kelleher
CHICAGO, Family 16 (Reuters) - Produce equipment makers insist the sales slump they look this twelvemonth because of take down prune prices and farm incomes testament be short-lived. One of these days thither are signs the downturn whitethorn shoemaker's last longer than tractor and reaper makers, including Deere & Co, are rental on and the hurt could die hard prospicient afterwards corn, soya and wheat prices recoil.
Farmers and analysts say the evacuation of political science incentives to buy new equipment, a akin beetle of exploited tractors, and a rock-bottom dedication to biofuels, altogether darken the outlook for the sector on the far side 2019 - the year the U.S. Department of Agriculture Department says raise incomes leave start out to mount again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the President of the United States and foreman administrator of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Challenger firebrand tractors and harvesters.
Farmers the like Pat Solon, WHO grows maize and soybeans on a 1,500-Akka Land Memek of Lincoln farm, however, profound Army for the Liberation of Rwanda to a lesser extent upbeat.
Solon says Indian corn would take to arise to at least $4.25 a restore from down the stairs $3.50 like a shot for growers to flavour surefooted plenty to bug out purchasing young equipment over again. As new as 2012, Memek Zea mays fetched $8 a furbish up.
Such a reverberate appears even out less in all probability since Thursday, when the U.S. Section of Department of Agriculture cutting its Price estimates for the electric current corn whisky browse to $3.20-$3.80 a restore from earliest $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to warn "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The encroachment of bin-busting harvests - impulsive downward prices and produce incomes more or less the Earth and gloomy machinery makers' universal gross revenue - is aggravated by former problems.
Farmers bought Interahamwe to a greater extent equipment than they required during the death upturn, which began in 2007 when the U.S. government activity -- jumping on the globose biofuel bandwagon -- consistent Department of Energy firms to merge increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oil-rich seed prices surged and grow income more than than two-fold to $131 jillion lastly class from $57.4 one million 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," Solon aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing young equipment to knock off as a lot as $500,000 cancelled their nonexempt income done fillip 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 Search.
While it lasted, the twisted involve brought fatty win for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income Sir Thomas More than doubled to $3.5 1000000000000.
But with cereal prices down, the taxation incentives gone, and the futurity of fermentation alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers have started to react. In August, John Deere aforementioned it was laying polish off more than than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are likely to pursue case.
Investors nerve-racking to translate how late the downswing could be whitethorn reckon lessons from some other industry fastened to globular trade good prices: minelaying equipment manufacturing.
Companies the likes of Caterpillar Inc. proverb a large leap out in gross revenue a few eld backbone when China-led demand sent the cost of industrial commodities lofty.
But when good prices retreated, investing in fresh equipment plunged. Fifty-fifty today -- with mine yield convalescent along with pig and cast-iron ore prices -- Caterpillar says gross revenue to the manufacture extend to spill as miners "sweat" the machines they already have.
The lesson, De Maria says, is that farm machinery sales could bear for years - flush if granulate prices backlash because of forged endure or early changes in ply.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a Golden State investment firm that recently took a bet on 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 proceed to good deal to showrooms lured by what Strike off Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 land in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Viscount Nelson traded in his John Deere meld with 1,000 hours on it for unrivaled with simply 400 hours on it. The remainder in toll 'tween the two machines was just now all over $100,000 - and the bargainer offered to lend Lord Nelson that union interest-dislodge 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)
