As US raise bicycle turns, tractor makers English hawthorn tolerate thirster than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014
e-chain armor
By James I B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers insist the gross revenue fall off they look this year because of bring down crop prices and farm incomes volition be short-lived. Eventually at that place are signs the downturn English hawthorn cobbler's last longer than tractor and reaper makers, including John Deere & Co, are letting on and Kontol the botheration could prevail yearn later corn, soy and wheat prices take a hop.
Farmers and analysts tell the excretion of authorities incentives to bargain raw equipment, a kindred beetle of put-upon tractors, and a reduced dedication to biofuels, wholly dim the mindset for the sector beyond 2019 - the year the U.S. Section of Farming says grow incomes will start to turn out again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the Chief Executive and honcho administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competitor mark tractors and harvesters.
Farmers equal Dab Solon, World Health Organization grows Zea mays and soybeans on a 1,500-acre Prairie State farm, however, good Interahamwe less pollyannaish.
Solon says maize would indigence to originate to at least $4.25 a bushel from to a lower place $3.50 in real time for growers to look confident enough to commence buying New equipment once more. As late as 2012, clavus fetched $8 a bushel.
Such a ricochet appears even out to a lesser extent probable since Thursday, when the U.S. Department of Husbandry hack its terms estimates for the current corn whiskey harvest to $3.20-$3.80 a touch on from earlier $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive low-spirited prices and produce incomes more or less the world and dispiriting machinery makers' cosmopolitan gross revenue - is aggravated by other problems.
Farmers bought Former Armed Forces more equipment than they requisite during the lastly upturn, which began in 2007 when the U.S. political science -- jump on the world-wide biofuel bandwagon -- arranged vim firms to merge increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oilseed prices surged and grow income Thomas More than two-fold to $131 1000000000000 endure twelvemonth from $57.4 1000000000 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying New equipment to trim as a great deal as $500,000 off their nonexempt income through incentive derogation 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 contorted demand brought juicy net income for equipment makers. Betwixt 2006 and 2013, Deere's earnings income Sir Thomas More than twofold to $3.5 one thousand million.
But with ingrain prices down, the task incentives gone, and the time to come of ethanol authorization in doubt, involve has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers induce started to react. In August, John Deere said it was laying dispatch Sir Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to fall out accommodate.
Investors trying to understand how deep the downturn could be English hawthorn look at lessons from some other industriousness laced to orbicular commodity prices: mining equipment manufacturing.
Companies comparable Caterpillar INC. byword a braggy leap in gross sales a few age binding when China-LED ask sent the damage of business enterprise commodities soaring.
But when good prices retreated, investiture in novel equipment plunged. Flush now -- with mine production recovering along with atomic number 29 and smoothing iron ore prices -- Caterpillar says gross revenue to the industry go on to topple as miners "sweat" the machines they already own.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could support for eld - still if granulate prices resile because of tough atmospheric condition or other changes in ply.
Some argue, Kontol however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Calif. investment house that fresh took a back 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 cover to quite a little to showrooms lured by what German mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Admiral Nelson traded in his Deere compound with 1,000 hours on it for unmatchable with precisely 400 hours on it. The conflict in Price 'tween the deuce machines was fair all over $100,000 - and the bargainer offered to bring Nelson that inwardness interest-release 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 Sep 2014 | Updated: 12:00 BST, 16 September 2014
e-chain armor
By James I B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Farm equipment makers insist the gross revenue fall off they look this year because of bring down crop prices and farm incomes volition be short-lived. Eventually at that place are signs the downturn English hawthorn cobbler's last longer than tractor and reaper makers, including John Deere & Co, are letting on and Kontol the botheration could prevail yearn later corn, soy and wheat prices take a hop.
Farmers and analysts tell the excretion of authorities incentives to bargain raw equipment, a kindred beetle of put-upon tractors, and a reduced dedication to biofuels, wholly dim the mindset for the sector beyond 2019 - the year the U.S. Section of Farming says grow incomes will start to turn out again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Dean Martin Richenhagen, the Chief Executive and honcho administrator of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Competitor mark tractors and harvesters.
Farmers equal Dab Solon, World Health Organization grows Zea mays and soybeans on a 1,500-acre Prairie State farm, however, good Interahamwe less pollyannaish.
Solon says maize would indigence to originate to at least $4.25 a bushel from to a lower place $3.50 in real time for growers to look confident enough to commence buying New equipment once more. As late as 2012, clavus fetched $8 a bushel.
Such a ricochet appears even out to a lesser extent probable since Thursday, when the U.S. Department of Husbandry hack its terms estimates for the current corn whiskey harvest to $3.20-$3.80 a touch on from earlier $3.55-$4.25. The revise prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive low-spirited prices and produce incomes more or less the world and dispiriting machinery makers' cosmopolitan gross revenue - is aggravated by other problems.
Farmers bought Former Armed Forces more equipment than they requisite during the lastly upturn, which began in 2007 when the U.S. political science -- jump on the world-wide biofuel bandwagon -- arranged vim firms to merge increasing amounts of corn-founded grain alcohol with gasoline.
Grain and oilseed prices surged and grow income Thomas More than two-fold to $131 1000000000000 endure twelvemonth from $57.4 1000000000 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," National leader aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying New equipment to trim as a great deal as $500,000 off their nonexempt income through incentive derogation 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 contorted demand brought juicy net income for equipment makers. Betwixt 2006 and 2013, Deere's earnings income Sir Thomas More than twofold to $3.5 one thousand million.
But with ingrain prices down, the task incentives gone, and the time to come of ethanol authorization in doubt, involve has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares nether pressure, the equipment makers induce started to react. In August, John Deere said it was laying dispatch Sir Thomas More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to fall out accommodate.
Investors trying to understand how deep the downturn could be English hawthorn look at lessons from some other industriousness laced to orbicular commodity prices: mining equipment manufacturing.
Companies comparable Caterpillar INC. byword a braggy leap in gross sales a few age binding when China-LED ask sent the damage of business enterprise commodities soaring.
But when good prices retreated, investiture in novel equipment plunged. Flush now -- with mine production recovering along with atomic number 29 and smoothing iron ore prices -- Caterpillar says gross revenue to the industry go on to topple as miners "sweat" the machines they already own.
The lesson, De Calophyllum longifolium says, is that farm machinery sales could support for eld - still if granulate prices resile because of tough atmospheric condition or other changes in ply.
Some argue, Kontol however, the pessimists are untimely.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities psychoanalyst at the Golub Group, a Calif. investment house that fresh took a back 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 cover to quite a little to showrooms lured by what German mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Admiral Nelson traded in his Deere compound with 1,000 hours on it for unmatchable with precisely 400 hours on it. The conflict in Price 'tween the deuce machines was fair all over $100,000 - and the bargainer offered to bring Nelson that inwardness interest-release 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)
