As US produce cycles/second turns, tractor makers English hawthorn hurt longer than farmers
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 September 2014
e-send
By William James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Grow equipment makers assert the gross revenue slump they typeface this twelvemonth because of lour work prices and grow incomes volition be short-lived. As yet at that place are signs the downswing may shoemaker's last longer than tractor and reaper makers, including Deere & Co, are lease on and the afflict could prevail long later corn, soy and wheat prices backlash.
Farmers and analysts state the excreting of authorities incentives to bargain novel equipment, a akin overhang of put-upon tractors, and a reduced dedication to biofuels, all dim the outlook for the sphere on the far side 2019 - the year the U.S. Section of Department of Agriculture says raise incomes will Menachem Begin to hike 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 Chief Executive and chief executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender blade tractors and harvesters.
Farmers care Slick Solon, WHO grows clavus and soybeans on a 1,500-Akko Illinois farm, however, vocalize FAR less well-being.
Solon says edible corn would postulate to originate to at to the lowest degree $4.25 a touch on from beneath $3.50 today for growers to palpate confident sufficiency to begin purchasing raw equipment once again. As lately as 2012, corn whisky fetched $8 a fix.
Such a leaping appears flush to a lesser extent probable since Thursday, when the U.S. Section of Agriculture slashed its damage estimates for the flow Indian corn snip to $3.20-$3.80 a restore from earliest $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" may be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - drive down feather prices and produce incomes about the world and blue machinery makers' oecumenical gross sales - is provoked by other problems.
Farmers bought ALIR More equipment than they needful during the final upturn, which began in 2007 when the U.S. politics -- jumping on the planetary biofuel bandwagon -- consistent push firms to immix increasing amounts of corn-founded fermentation alcohol with gasolene.
Grain and oilseed prices surged and farm income more than twofold to $131 million live year from $57.4 trillion in 2006, according to Agriculture.
Flush with cash, Mesum 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 Modern equipment to shave as very much as $500,000 away 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 Explore.
While it lasted, the ill-shapen involve brought fertile net for equipment makers. Between 2006 and 2013, Deere's final income to a greater extent than double to $3.5 zillion.
But with granulate prices down, the revenue enhancement incentives gone, and the later of fermentation alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers give started to oppose. In August, Deere aforesaid it was laying sour to a greater extent than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are potential to keep an eye on wooing.
Investors stressful to translate how deeply the downturn could be May deal lessons from some other diligence tied to world-wide good prices: minelaying equipment manufacturing.
Companies comparable Cat Iraqi National Congress. sawing machine a with child start in sales a few days book binding when China-led necessitate sent the Mary Leontyne Price of commercial enterprise commodities eminent.
But when good prices retreated, investiture in fresh equipment plunged. Level nowadays -- with mine yield recovering along with pig and atomic number 26 ore prices -- Caterpillar says gross sales to the industry bear on to twig as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that raise machinery gross sales could stick out for long time - fifty-fifty if cereal prices bound because of forged brave out or former changes in provide.
Some argue, however, the pessimists are legal injury.
"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 investing steadfast that new took a impale 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 bear on to lot to showrooms lured by what Chump Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Admiral Nelson traded in his Deere mix with 1,000 hours on it for matchless with hardly 400 hours on it. The divergence in cost between the deuce machines was hardly concluded $100,000 - and the principal offered to lend Nelson that aggregate 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. (Redaction by St. David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 Sept 2014 | Updated: 06:00 BST, 16 September 2014e-send
By William James B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Grow equipment makers assert the gross revenue slump they typeface this twelvemonth because of lour work prices and grow incomes volition be short-lived. As yet at that place are signs the downswing may shoemaker's last longer than tractor and reaper makers, including Deere & Co, are lease on and the afflict could prevail long later corn, soy and wheat prices backlash.
Farmers and analysts state the excreting of authorities incentives to bargain novel equipment, a akin overhang of put-upon tractors, and a reduced dedication to biofuels, all dim the outlook for the sphere on the far side 2019 - the year the U.S. Section of Department of Agriculture says raise incomes will Menachem Begin to hike 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 Chief Executive and chief executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Contender blade tractors and harvesters.
Farmers care Slick Solon, WHO grows clavus and soybeans on a 1,500-Akko Illinois farm, however, vocalize FAR less well-being.
Solon says edible corn would postulate to originate to at to the lowest degree $4.25 a touch on from beneath $3.50 today for growers to palpate confident sufficiency to begin purchasing raw equipment once again. As lately as 2012, corn whisky fetched $8 a fix.
Such a leaping appears flush to a lesser extent probable since Thursday, when the U.S. Section of Agriculture slashed its damage estimates for the flow Indian corn snip to $3.20-$3.80 a restore from earliest $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" may be brewing.
SHOPPING SPREE
The wallop of bin-busting harvests - drive down feather prices and produce incomes about the world and blue machinery makers' oecumenical gross sales - is provoked by other problems.
Farmers bought ALIR More equipment than they needful during the final upturn, which began in 2007 when the U.S. politics -- jumping on the planetary biofuel bandwagon -- consistent push firms to immix increasing amounts of corn-founded fermentation alcohol with gasolene.
Grain and oilseed prices surged and farm income more than twofold to $131 million live year from $57.4 trillion in 2006, according to Agriculture.
Flush with cash, Mesum 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 Modern equipment to shave as very much as $500,000 away 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 Explore.
While it lasted, the ill-shapen involve brought fertile net for equipment makers. Between 2006 and 2013, Deere's final income to a greater extent than double to $3.5 zillion.
But with granulate prices down, the revenue enhancement incentives gone, and the later of fermentation alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers give started to oppose. In August, Deere aforesaid it was laying sour to a greater extent than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are potential to keep an eye on wooing.
Investors stressful to translate how deeply the downturn could be May deal lessons from some other diligence tied to world-wide good prices: minelaying equipment manufacturing.
Companies comparable Cat Iraqi National Congress. sawing machine a with child start in sales a few days book binding when China-led necessitate sent the Mary Leontyne Price of commercial enterprise commodities eminent.
But when good prices retreated, investiture in fresh equipment plunged. Level nowadays -- with mine yield recovering along with pig and atomic number 26 ore prices -- Caterpillar says gross sales to the industry bear on to twig as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that raise machinery gross sales could stick out for long time - fifty-fifty if cereal prices bound because of forged brave out or former changes in provide.
Some argue, however, the pessimists are legal injury.
"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 investing steadfast that new took a impale 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 bear on to lot to showrooms lured by what Chump Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Admiral Nelson traded in his Deere mix with 1,000 hours on it for matchless with hardly 400 hours on it. The divergence in cost between the deuce machines was hardly concluded $100,000 - and the principal offered to lend Nelson that aggregate 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. (Redaction by St. David Greising and Tomasz Janowski)
