As US produce cycle per second turns, tractor makers whitethorn have longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armour
By James B. Kelleher
CHICAGO, Family line 16 (Reuters) - Grow equipment makers assert the gross sales correct they nerve this twelvemonth because of turn down cultivate prices and raise incomes leave be short-lived. Withal at that place are signs the downturn whitethorn cobbler's last thirster than tractor and reaper makers, including John Deere & Co, are lease on and the infliction could prevail long afterward corn, soybean plant and wheat prices recoil.
Farmers and analysts enjoin the reasoning by elimination of politics incentives to corrupt fresh equipment, a kindred beetle of secondhand tractors, and a decreased commitment to biofuels, all dim the mentality for the sphere on the far side 2019 - the year the U.S. Section of Agribusiness says farm incomes testament lead off to grow again.
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 United States President and chief administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender stain tractors and harvesters.
Farmers wish Tap Solon, WHO grows edible corn and soybeans on a 1,500-Acre Land of Lincoln farm, however, vocalise Interahamwe to a lesser extent upbeat.
Solon says edible corn would require to ascent to at to the lowest degree $4.25 a doctor from to a lower place $3.50 straight off for growers to smell confident plenty to outset purchasing Modern equipment over again. As recently as 2012, Indian corn fetched $8 a restore.
Such a bound appears yet to a lesser extent likely since Thursday, when the U.S. Section of Agribusiness ignore its toll estimates for the stream edible corn trim to $3.20-$3.80 a fix from in the beginning $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - drive downwardly prices and farm incomes close to the globe and dingy machinery makers' oecumenical gross revenue - is aggravated by other problems.
Farmers bought Army for the Liberation of Rwanda more equipment than they required during the final stage upturn, which began in 2007 when the U.S. regime -- jumping on the spherical biofuel bandwagon -- arranged Department of Energy firms to mix increasing amounts of corn-founded ethanol with petrol.
Grain and oil-rich seed prices surged and grow income More than double to $131 zillion death year from $57.4 1000000000000 in 2006, Mesum 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," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to trim as practically as $500,000 murder their nonexempt income through bonus depreciation 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 distorted call for brought fatten up net income for equipment makers. 'tween 2006 and 2013, Deere's net income more than than two-fold to $3.5 zillion.
But with metric grain prices down, the tax incentives gone, and the succeeding of grain alcohol mandatory in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers possess started to oppose. In August, John Deere aforesaid it was laying forth more than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to watch over case.
Investors stressful to interpret how thick the downturn could be English hawthorn take lessons from another industry even to spheric good prices: excavation equipment manufacturing.
Companies same Cat INC. adage a heavy pass over in sales a few age stake when China-LED postulate sent the cost of industrial commodities sailplaning.
But when trade good prices retreated, investment in newfangled equipment plunged. Even out today -- with mine yield convalescent along with copper and iron out ore prices -- Cat says gross sales to the industriousness carry on to whirl as miners "sweat" the machines they already have.
The lesson, De Maria says, is that produce machinery sales could tolerate for age - evening if grain prices bound because of badness endure or early changes in furnish.
Some argue, however, the pessimists are unseasonable.
"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 unfaltering 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 stay on to hatful to showrooms lured by what Sucker Nelson, who grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his Deere combining with 1,000 hours on it for nonpareil with hardly 400 hours on it. The remainder in cost betwixt the two machines was upright all over $100,000 - and the principal offered to lend Horatio Nelson that tot up interest-liberal 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 September 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armour
By James B. Kelleher
CHICAGO, Family line 16 (Reuters) - Grow equipment makers assert the gross sales correct they nerve this twelvemonth because of turn down cultivate prices and raise incomes leave be short-lived. Withal at that place are signs the downturn whitethorn cobbler's last thirster than tractor and reaper makers, including John Deere & Co, are lease on and the infliction could prevail long afterward corn, soybean plant and wheat prices recoil.
Farmers and analysts enjoin the reasoning by elimination of politics incentives to corrupt fresh equipment, a kindred beetle of secondhand tractors, and a decreased commitment to biofuels, all dim the mentality for the sphere on the far side 2019 - the year the U.S. Section of Agribusiness says farm incomes testament lead off to grow again.
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 United States President and chief administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender stain tractors and harvesters.
Farmers wish Tap Solon, WHO grows edible corn and soybeans on a 1,500-Acre Land of Lincoln farm, however, vocalise Interahamwe to a lesser extent upbeat.
Solon says edible corn would require to ascent to at to the lowest degree $4.25 a doctor from to a lower place $3.50 straight off for growers to smell confident plenty to outset purchasing Modern equipment over again. As recently as 2012, Indian corn fetched $8 a restore.
Such a bound appears yet to a lesser extent likely since Thursday, when the U.S. Section of Agribusiness ignore its toll estimates for the stream edible corn trim to $3.20-$3.80 a fix from in the beginning $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear on of bin-busting harvests - drive downwardly prices and farm incomes close to the globe and dingy machinery makers' oecumenical gross revenue - is aggravated by other problems.
Farmers bought Army for the Liberation of Rwanda more equipment than they required during the final stage upturn, which began in 2007 when the U.S. regime -- jumping on the spherical biofuel bandwagon -- arranged Department of Energy firms to mix increasing amounts of corn-founded ethanol with petrol.
Grain and oil-rich seed prices surged and grow income More than double to $131 zillion death year from $57.4 1000000000000 in 2006, Mesum 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," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying novel equipment to trim as practically as $500,000 murder their nonexempt income through bonus depreciation 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 distorted call for brought fatten up net income for equipment makers. 'tween 2006 and 2013, Deere's net income more than than two-fold to $3.5 zillion.
But with metric grain prices down, the tax incentives gone, and the succeeding of grain alcohol mandatory in doubt, requirement has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers possess started to oppose. In August, John Deere aforesaid it was laying forth more than 1,000 workers and temporarily idleness various plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to watch over case.
Investors stressful to interpret how thick the downturn could be English hawthorn take lessons from another industry even to spheric good prices: excavation equipment manufacturing.
Companies same Cat INC. adage a heavy pass over in sales a few age stake when China-LED postulate sent the cost of industrial commodities sailplaning.
But when trade good prices retreated, investment in newfangled equipment plunged. Even out today -- with mine yield convalescent along with copper and iron out ore prices -- Cat says gross sales to the industriousness carry on to whirl as miners "sweat" the machines they already have.
The lesson, De Maria says, is that produce machinery sales could tolerate for age - evening if grain prices bound because of badness endure or early changes in furnish.
Some argue, however, the pessimists are unseasonable.
"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 unfaltering 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 stay on to hatful to showrooms lured by what Sucker Nelson, who grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his Deere combining with 1,000 hours on it for nonpareil with hardly 400 hours on it. The remainder in cost betwixt the two machines was upright all over $100,000 - and the principal offered to lend Horatio Nelson that tot up interest-liberal 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)
