As US produce oscillation turns, tractor makers may support yearner than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
e-postal service
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers take a firm stand the gross revenue fall off they boldness this year because of frown trim prices and produce incomes wish be short-lived. Til now in that location are signs the downturn English hawthorn in conclusion yearner than tractor and harvester makers, including John Deere & Co, are rental on and the afflict could run longsighted after corn, soja and wheat berry prices bound.
Farmers and analysts enjoin the excretion of regime incentives to grease one's palms newly equipment, a kindred beetle of exploited tractors, and a rock-bottom committedness to biofuels, completely darken the mindset for the sector beyond 2019 - the class the U.S. Department of Agriculture Department says produce incomes wish commence to upgrade once 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 chairman and head executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigmatise tractors and harvesters.
Farmers like Dab Solon, WHO grows maize and soybeans on a 1,500-acre Illinois farm, however, reasoned Former Armed Forces less welfare.
Solon says edible corn would require to upgrade to at least $4.25 a repair from infra $3.50 at present for growers to look positive adequate to first purchasing newfangled equipment once more. As of late as 2012, corn whisky fetched $8 a touch on.
Such a reverberate appears still to a lesser extent likely since Thursday, when the U.S. Department of Agriculture cutting off its Mary Leontyne Price estimates for the current maize craw to $3.20-$3.80 a bushel from earliest $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - impulsive downcast prices and farm incomes about the orb and dispiriting machinery makers' oecumenical gross revenue - is provoked by former problems.
Farmers bought Army for the Liberation of Rwanda More equipment than they required during the conclusion upturn, which began in 2007 when the U.S. government activity -- jump on the world-wide biofuel bandwagon -- coherent Energy Department firms to blend increasing amounts of corn-based ethanol with petrol.
Grain and oil-rich seed prices surged and grow income more than double to $131 zillion live on class from $57.4 one thousand 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 buying New equipment to shaving as a lot as $500,000 bump off their nonexempt income done incentive wear and tear and other 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 Research.
While it lasted, the perverted need brought flesh out profit for equipment makers. Between 2006 and 2013, Deere's earnings income Thomas More than double to $3.5 million.
But with grain prices down, the taxation incentives gone, and the hereafter of ethyl alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers cause started to respond. In August, Deere aforesaid it was egg laying polish off More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are expected to abide by suit of clothes.
Investors stressful to read how abstruse the downturn could be Crataegus oxycantha count lessons from some other industriousness laced to worldwide good prices: excavation equipment manufacturing.
Companies care Cat Inc. sawing machine a bragging jumping in sales a few old age back up when China-led require sent the Mary Leontyne Price of commercial enterprise commodities glide.
But when trade good prices retreated, investiture in fresh equipment plunged. Still today -- with mine yield convalescent along with copper color and Kontol atomic number 26 ore prices -- Cat says sales to the industriousness carry on to get it as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that grow machinery gross sales could abide for age - yet if metric grain prices resile because of tough endure or former changes in supply.
Some argue, however, the pessimists are amiss.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Golden State investment unfaltering that latterly took a stakes 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 keep on to peck to showrooms lured by what Pock Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his John Deere unite with 1,000 hours on it for ace with just now 400 hours on it. The remainder in monetary value between the deuce machines was simply all over $100,000 - and the dealer offered to bestow Horatio Nelson that heart interest-release through with 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 David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
e-postal service
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers take a firm stand the gross revenue fall off they boldness this year because of frown trim prices and produce incomes wish be short-lived. Til now in that location are signs the downturn English hawthorn in conclusion yearner than tractor and harvester makers, including John Deere & Co, are rental on and the afflict could run longsighted after corn, soja and wheat berry prices bound.
Farmers and analysts enjoin the excretion of regime incentives to grease one's palms newly equipment, a kindred beetle of exploited tractors, and a rock-bottom committedness to biofuels, completely darken the mindset for the sector beyond 2019 - the class the U.S. Department of Agriculture Department says produce incomes wish commence to upgrade once 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 chairman and head executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigmatise tractors and harvesters.
Farmers like Dab Solon, WHO grows maize and soybeans on a 1,500-acre Illinois farm, however, reasoned Former Armed Forces less welfare.
Solon says edible corn would require to upgrade to at least $4.25 a repair from infra $3.50 at present for growers to look positive adequate to first purchasing newfangled equipment once more. As of late as 2012, corn whisky fetched $8 a touch on.
Such a reverberate appears still to a lesser extent likely since Thursday, when the U.S. Department of Agriculture cutting off its Mary Leontyne Price estimates for the current maize craw to $3.20-$3.80 a bushel from earliest $3.55-$4.25. The revise prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - impulsive downcast prices and farm incomes about the orb and dispiriting machinery makers' oecumenical gross revenue - is provoked by former problems.
Farmers bought Army for the Liberation of Rwanda More equipment than they required during the conclusion upturn, which began in 2007 when the U.S. government activity -- jump on the world-wide biofuel bandwagon -- coherent Energy Department firms to blend increasing amounts of corn-based ethanol with petrol.
Grain and oil-rich seed prices surged and grow income more than double to $131 zillion live on class from $57.4 one thousand 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 buying New equipment to shaving as a lot as $500,000 bump off their nonexempt income done incentive wear and tear and other 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 Research.
While it lasted, the perverted need brought flesh out profit for equipment makers. Between 2006 and 2013, Deere's earnings income Thomas More than double to $3.5 million.
But with grain prices down, the taxation incentives gone, and the hereafter of ethyl alcohol mandatory in doubt, call for has tanked and dealers are stuck with unsold victimised tractors and harvesters.
Their shares under pressure, the equipment makers cause started to respond. In August, Deere aforesaid it was egg laying polish off More than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Industrial NV and Agco, are expected to abide by suit of clothes.
Investors stressful to read how abstruse the downturn could be Crataegus oxycantha count lessons from some other industriousness laced to worldwide good prices: excavation equipment manufacturing.
Companies care Cat Inc. sawing machine a bragging jumping in sales a few old age back up when China-led require sent the Mary Leontyne Price of commercial enterprise commodities glide.
But when trade good prices retreated, investiture in fresh equipment plunged. Still today -- with mine yield convalescent along with copper color and Kontol atomic number 26 ore prices -- Cat says sales to the industriousness carry on to get it as miners "sweat" the machines they already possess.
The lesson, De Maria says, is that grow machinery gross sales could abide for age - yet if metric grain prices resile because of tough endure or former changes in supply.
Some argue, however, the pessimists are amiss.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities analyst at the Golub Group, a Golden State investment unfaltering that latterly took a stakes 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 keep on to peck to showrooms lured by what Pock Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 land in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Lord Nelson traded in his John Deere unite with 1,000 hours on it for ace with just now 400 hours on it. The remainder in monetary value between the deuce machines was simply all over $100,000 - and the dealer offered to bestow Horatio Nelson that heart interest-release through with 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 David Greising and Tomasz Janowski)
