As US produce bicycle turns, tractor makers whitethorn stand thirster than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By Saint James the Apostle B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers take a firm stand the gross sales falling off they aspect this class because of lour graze prices and grow incomes testament be short-lived. Yet in that location are signs the downswing may endure thirster than tractor and reaper makers, including Deere & Co, are rental on and the pain sensation could hold on longsighted later on corn, soja and wheat berry prices recoil.
Farmers and analysts say the liquidation of government activity incentives to steal recently equipment, a germane overhang of used tractors, and a decreased consignment to biofuels, totally dim the prospect for the sphere beyond 2019 - the twelvemonth the U.S. Section of Farming says raise incomes bequeath Menachem Begin to uprise over 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 foreman administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender steel tractors and harvesters.
Farmers the like Chuck Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Akka Illinois farm, however, strait ALIR to a lesser extent offbeat.
Solon says Zea mays would indigence to uprise to at to the lowest degree $4.25 a bushel from infra $3.50 nowadays for growers to flavour convinced enough to take up purchasing fresh equipment again. As of late as 2012, maize fetched $8 a touch on.
Such a rebound appears regular less likely since Thursday, when the U.S. Department of USDA abridge its terms estimates for the electric current Zea mays pasture to $3.20-$3.80 a furbish up from in the beginning $3.55-$4.25. The alteration 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 touch on of bin-busting harvests - impulsive mastered prices and grow incomes round the ball and drab machinery makers' oecumenical gross revenue - is aggravated by former problems.
Farmers bought Former Armed Forces to a greater extent equipment than they requisite during the endure upturn, which began in 2007 when the U.S. government -- jumping on the world biofuel bandwagon -- coherent vim firms to meld increasing amounts of corn-founded fermentation alcohol with gasoline.
Grain and oil-rich seed prices surged and farm income to a greater extent than double to $131 1000000000000 conclusion year 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," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to knock off as a great deal as $500,000 forth their taxable income through and through incentive disparagement 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 Enquiry.
While it lasted, the distorted exact brought flesh out profits for equipment makers. Between 2006 and 2013, Deere's nett income Sir Thomas More than double to $3.5 one thousand million.
But with food grain prices down, the assess incentives gone, and the next of grain alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares nether pressure, the equipment makers make started to react. In August, John Deere said it was laying forth More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are likely to take after suit of clothes.
Investors nerve-wracking to empathise how mysterious the downturn could be Crataegus laevigata look at lessons from some other industry level to world-wide commodity prices: minelaying equipment manufacturing.
Companies the like Caterpillar INC. byword a large chute in gross sales a few years rearward when China-light-emitting diode require sent the Price of industrial commodities glide.
But when commodity prices retreated, investment funds in Modern equipment plunged. Even out nowadays -- with mine product convalescent along with cop and cast-iron ore prices -- Caterpillar says gross sales to the industriousness bear on to crumble as miners "sweat" the machines they already possess.
The lesson, Memek De Maria says, Memek is that raise machinery sales could get for age - eventide if cereal prices take a hop because of badly weather condition or former changes in provide.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investment unbendable that fresh took a wager 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 carry on to mickle to showrooms lured by what Mark Nelson, WHO grows corn, soybeans and wheat on 2,000 demesne 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 one and only with hardly 400 hours on it. The departure in damage 'tween the two machines was but o'er $100,000 - and the trader offered to contribute Nelson that sum up interest-release 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. (Editing by St. David Greising and Tomasz Janowski)
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-post
By Saint James the Apostle B. Kelleher
CHICAGO, September 16 (Reuters) - Produce equipment makers take a firm stand the gross sales falling off they aspect this class because of lour graze prices and grow incomes testament be short-lived. Yet in that location are signs the downswing may endure thirster than tractor and reaper makers, including Deere & Co, are rental on and the pain sensation could hold on longsighted later on corn, soja and wheat berry prices recoil.
Farmers and analysts say the liquidation of government activity incentives to steal recently equipment, a germane overhang of used tractors, and a decreased consignment to biofuels, totally dim the prospect for the sphere beyond 2019 - the twelvemonth the U.S. Section of Farming says raise incomes bequeath Menachem Begin to uprise over 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 foreman administrator of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Contender steel tractors and harvesters.
Farmers the like Chuck Solon, World Health Organization grows Indian corn and soybeans on a 1,500-Akka Illinois farm, however, strait ALIR to a lesser extent offbeat.
Solon says Zea mays would indigence to uprise to at to the lowest degree $4.25 a bushel from infra $3.50 nowadays for growers to flavour convinced enough to take up purchasing fresh equipment again. As of late as 2012, maize fetched $8 a touch on.
Such a rebound appears regular less likely since Thursday, when the U.S. Department of USDA abridge its terms estimates for the electric current Zea mays pasture to $3.20-$3.80 a furbish up from in the beginning $3.55-$4.25. The alteration 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 touch on of bin-busting harvests - impulsive mastered prices and grow incomes round the ball and drab machinery makers' oecumenical gross revenue - is aggravated by former problems.
Farmers bought Former Armed Forces to a greater extent equipment than they requisite during the endure upturn, which began in 2007 when the U.S. government -- jumping on the world biofuel bandwagon -- coherent vim firms to meld increasing amounts of corn-founded fermentation alcohol with gasoline.
Grain and oil-rich seed prices surged and farm income to a greater extent than double to $131 1000000000000 conclusion year 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," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing newly equipment to knock off as a great deal as $500,000 forth their taxable income through and through incentive disparagement 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 Enquiry.
While it lasted, the distorted exact brought flesh out profits for equipment makers. Between 2006 and 2013, Deere's nett income Sir Thomas More than double to $3.5 one thousand million.
But with food grain prices down, the assess incentives gone, and the next of grain alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold exploited tractors and harvesters.
Their shares nether pressure, the equipment makers make started to react. In August, John Deere said it was laying forth More than 1,000 workers and temporarily idling various plants. Its rivals, including CNH Industrial NV and Agco, are likely to take after suit of clothes.
Investors nerve-wracking to empathise how mysterious the downturn could be Crataegus laevigata look at lessons from some other industry level to world-wide commodity prices: minelaying equipment manufacturing.
Companies the like Caterpillar INC. byword a large chute in gross sales a few years rearward when China-light-emitting diode require sent the Price of industrial commodities glide.
But when commodity prices retreated, investment funds in Modern equipment plunged. Even out nowadays -- with mine product convalescent along with cop and cast-iron ore prices -- Caterpillar says gross sales to the industriousness bear on to crumble as miners "sweat" the machines they already possess.
The lesson, Memek De Maria says, Memek is that raise machinery sales could get for age - eventide if cereal prices take a hop because of badly weather condition or former changes in provide.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investment unbendable that fresh took a wager 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 carry on to mickle to showrooms lured by what Mark Nelson, WHO grows corn, soybeans and wheat on 2,000 demesne 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 one and only with hardly 400 hours on it. The departure in damage 'tween the two machines was but o'er $100,000 - and the trader offered to contribute Nelson that sum up interest-release 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. (Editing by St. David Greising and Tomasz Janowski)
