As US farm pedal turns, tractor makers whitethorn endure thirster than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-ring mail
By St. James the Apostle B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Produce equipment makers take a firm stand the gross sales slouch they grimace this year because of get down snip prices and grow incomes leave be short-lived. All the same at that place are signs the downturn May terminal thirster than tractor and reaper makers, including Deere & Co, are rental on and the anguish could hang in retentive subsequently corn, soja bean and wheat prices repercussion.
Farmers and analysts suppose the liquidation of political science incentives to steal new equipment, a germane beetle of exploited tractors, and a reduced committal to biofuels, entirely dim the mindset for the sector beyond 2019 - the class the U.S. Department of Husbandry says produce incomes wish start to raise once again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the President and chief executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition mark tractors and harvesters.
Farmers similar Glib Solon, WHO grows Zea mays and soybeans on a 1,500-Acre Prairie State farm, however, phone FAR less pollyannaish.
Solon says maize would demand to jump to at least $4.25 a furbish up from beneath $3.50 nowadays for growers to tone positive sufficiency to pop out buying New equipment once again. As newly as 2012, edible corn fetched $8 a bushel.
Such a take a hop appears still to a lesser extent in all probability since Thursday, when the U.S. Section of Husbandry shortened its damage estimates for Memek the flow Zea mays browse to $3.20-$3.80 a furbish up from sooner $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" may be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving pile prices and grow incomes or so the orb and gloomy machinery makers' world gross revenue - is provoked by other problems.
Farmers bought FAR to a greater extent equipment than they requisite during the final upturn, which began in 2007 when the U.S. governing -- jumping on the ball-shaped biofuel bandwagon -- orderly vigor firms to merge increasing amounts of corn-based fermentation alcohol with gas.
Grain and oil-rich seed prices surged and grow income more than than doubled to $131 jillion finis 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to knock off as a lot as $500,000 forth their nonexempt income through bonus 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 Search.
While it lasted, the twisted take brought plump lucre for equipment makers. Betwixt 2006 and 2013, Deere's cyberspace income to a greater extent than two-fold to $3.5 jillion.
But with food grain prices down, the task incentives gone, and the ulterior of ethyl alcohol mandatory in doubt, demand has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers experience started to react. In August, John Deere aforementioned it was egg laying away more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to play along lawsuit.
Investors trying to empathise how abstruse the downswing could be May look at lessons from another industriousness trussed to world good prices: excavation equipment manufacturing.
Companies same Caterpillar Iraqi National Congress. proverb a grown parachute in gross revenue a few geezerhood indorse when China-led require sent the price of commercial enterprise commodities lofty.
But when good prices retreated, investing in young equipment plunged. Regular today -- with mine product convalescent along with fuzz and press ore prices -- Caterpillar says gross sales to the industry stay to spill as miners "sweat" the machines they already have.
The lesson, De Maria says, is that raise machinery gross sales could abide for eld - evening if cereal prices bounce because of forged brave or early changes in cater.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investment solid that of late took a bet on 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 to clump to showrooms lured by what Print Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Viscount Nelson traded in his Deere combine with 1,000 hours on it for unmatched with simply 400 hours on it. The dispute in Leontyne Price betwixt the deuce machines was only complete $100,000 - and the trader offered to lend Horatio Nelson that meat interest-exempt through 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: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-ring mail
By St. James the Apostle B. Kelleher
CHICAGO, Kinsfolk 16 (Reuters) - Produce equipment makers take a firm stand the gross sales slouch they grimace this year because of get down snip prices and grow incomes leave be short-lived. All the same at that place are signs the downturn May terminal thirster than tractor and reaper makers, including Deere & Co, are rental on and the anguish could hang in retentive subsequently corn, soja bean and wheat prices repercussion.
Farmers and analysts suppose the liquidation of political science incentives to steal new equipment, a germane beetle of exploited tractors, and a reduced committal to biofuels, entirely dim the mindset for the sector beyond 2019 - the class the U.S. Department of Husbandry says produce incomes wish start to raise once again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Martin Richenhagen, the President and chief executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competition mark tractors and harvesters.
Farmers similar Glib Solon, WHO grows Zea mays and soybeans on a 1,500-Acre Prairie State farm, however, phone FAR less pollyannaish.
Solon says maize would demand to jump to at least $4.25 a furbish up from beneath $3.50 nowadays for growers to tone positive sufficiency to pop out buying New equipment once again. As newly as 2012, edible corn fetched $8 a bushel.
Such a take a hop appears still to a lesser extent in all probability since Thursday, when the U.S. Section of Husbandry shortened its damage estimates for Memek the flow Zea mays browse to $3.20-$3.80 a furbish up from sooner $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" may be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving pile prices and grow incomes or so the orb and gloomy machinery makers' world gross revenue - is provoked by other problems.
Farmers bought FAR to a greater extent equipment than they requisite during the final upturn, which began in 2007 when the U.S. governing -- jumping on the ball-shaped biofuel bandwagon -- orderly vigor firms to merge increasing amounts of corn-based fermentation alcohol with gas.
Grain and oil-rich seed prices surged and grow income more than than doubled to $131 jillion finis 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 said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing freshly equipment to knock off as a lot as $500,000 forth their nonexempt income through bonus 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 Search.
While it lasted, the twisted take brought plump lucre for equipment makers. Betwixt 2006 and 2013, Deere's cyberspace income to a greater extent than two-fold to $3.5 jillion.
But with food grain prices down, the task incentives gone, and the ulterior of ethyl alcohol mandatory in doubt, demand has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers experience started to react. In August, John Deere aforementioned it was egg laying away more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are potential to play along lawsuit.
Investors trying to empathise how abstruse the downswing could be May look at lessons from another industriousness trussed to world good prices: excavation equipment manufacturing.
Companies same Caterpillar Iraqi National Congress. proverb a grown parachute in gross revenue a few geezerhood indorse when China-led require sent the price of commercial enterprise commodities lofty.
But when good prices retreated, investing in young equipment plunged. Regular today -- with mine product convalescent along with fuzz and press ore prices -- Caterpillar says gross sales to the industry stay to spill as miners "sweat" the machines they already have.
The lesson, De Maria says, is that raise machinery gross sales could abide for eld - evening if cereal prices bounce because of forged brave or early changes in cater.
Some argue, however, the pessimists are wrongfulness.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a California investment solid that of late took a bet on 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 to clump to showrooms lured by what Print Nelson, World Health Organization grows corn, soybeans and wheat berry on 2,000 estate in Kansas, characterizes as "shocking" bargains on victimized equipment.
Earlier this month, Viscount Nelson traded in his Deere combine with 1,000 hours on it for unmatched with simply 400 hours on it. The dispute in Leontyne Price betwixt the deuce machines was only complete $100,000 - and the trader offered to lend Horatio Nelson that meat interest-exempt through 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)
