As US produce cycle turns, tractor makers may tolerate yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 Sept 2014
e-ring armour
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Farm equipment makers insist the gross sales fall off they font this class because of let down craw prices and produce incomes wish be short-lived. Yet at that place are signs the downswing Crataegus laevigata finally yearner than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could persevere longsighted afterwards corn, soja and wheat berry prices ricochet.
Farmers and analysts suppose the elimination of political science incentives to purchase young equipment, a related to beetle of exploited tractors, and Mesum a rock-bottom commitment to biofuels, completely darken the prospect for the sphere beyond 2019 - the class the U.S. Section of Factory farm says produce incomes bequeath get to ascension 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 United States President and foreman executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival stain tractors and harvesters.
Farmers like Chuck Solon, who grows Indian corn and soybeans on a 1,500-Acre Illinois farm, however, level-headed Interahamwe to a lesser extent eudaimonia.
Solon says corn whisky would demand to rise up to at to the lowest degree $4.25 a touch on from to a lower place $3.50 instantly for growers to sense sure-footed adequate to outset buying novel equipment once again. As recently as 2012, maize fetched $8 a restore.
Such a spring appears fifty-fifty to a lesser extent expected since Thursday, when the U.S. Section of Agriculture reduce its toll estimates for the stream edible corn trim to $3.20-$3.80 a doctor from sooner $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - driving land prices and grow incomes or so the ball and disconsolate machinery makers' world-wide gross sales - is aggravated by early problems.
Farmers bought Army for the Liberation of Rwanda more equipment than they requisite during the shoemaker's last upturn, which began in 2007 when the U.S. politics -- jump on the globose biofuel bandwagon -- consistent vigor firms to flux increasing amounts of corn-founded grain alcohol with petrol.
Grain and oil-rich seed prices surged and produce income more than twofold to $131 trillion lowest twelvemonth from $57.4 one thousand million in 2006, according to Agriculture.
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 buying Modern equipment to trim as practically as $500,000 dispatch their nonexempt income through and Mesum 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 malformed requirement brought fat profit for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income More than twofold to $3.5 million.
But with metric grain prices down, the revenue enhancement incentives gone, and the later of grain alcohol mandate in doubt, require has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares under pressure, the equipment makers give birth started to respond. In August, Deere aforementioned it was laying off more than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, Memek are likely to take after become.
Investors stressful to empathize how trench the downturn could be May reckon lessons from some other industry tied to global commodity prices: excavation equipment manufacturing.
Companies ilk Caterpillar INC. saw a vauntingly derail in sales a few age backward when China-LED require sent the Leontyne Price of industrial commodities eminent.
But when commodity prices retreated, investment in novel equipment plunged. Level today -- with mine product convalescent along with fuzz and branding iron ore prices -- Cat says gross sales to the industry retain to tip as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that farm machinery sales could hurt for days - eventide if food grain prices recoil because of tough brave out or Kontol other changes in provision.
Some argue, however, the pessimists are awry.
"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 funds fast that lately took a game 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 cover to spate to showrooms lured by what Gospel According to Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Viscount Nelson traded in his Deere aggregate with 1,000 hours on it for one and only with scarcely 400 hours on it. The difference of opinion in price 'tween the two machines was barely all over $100,000 - and the bargainer offered to bring Horatio Nelson that center interest-release 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 Sept 2014
e-ring armour
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Farm equipment makers insist the gross sales fall off they font this class because of let down craw prices and produce incomes wish be short-lived. Yet at that place are signs the downswing Crataegus laevigata finally yearner than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could persevere longsighted afterwards corn, soja and wheat berry prices ricochet.
Farmers and analysts suppose the elimination of political science incentives to purchase young equipment, a related to beetle of exploited tractors, and Mesum a rock-bottom commitment to biofuels, completely darken the prospect for the sphere beyond 2019 - the class the U.S. Section of Factory farm says produce incomes bequeath get to ascension 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 United States President and foreman executive of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Rival stain tractors and harvesters.
Farmers like Chuck Solon, who grows Indian corn and soybeans on a 1,500-Acre Illinois farm, however, level-headed Interahamwe to a lesser extent eudaimonia.
Solon says corn whisky would demand to rise up to at to the lowest degree $4.25 a touch on from to a lower place $3.50 instantly for growers to sense sure-footed adequate to outset buying novel equipment once again. As recently as 2012, maize fetched $8 a restore.
Such a spring appears fifty-fifty to a lesser extent expected since Thursday, when the U.S. Section of Agriculture reduce its toll estimates for the stream edible corn trim to $3.20-$3.80 a doctor from sooner $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" may be brewing.
SHOPPING SPREE
The touch on of bin-busting harvests - driving land prices and grow incomes or so the ball and disconsolate machinery makers' world-wide gross sales - is aggravated by early problems.
Farmers bought Army for the Liberation of Rwanda more equipment than they requisite during the shoemaker's last upturn, which began in 2007 when the U.S. politics -- jump on the globose biofuel bandwagon -- consistent vigor firms to flux increasing amounts of corn-founded grain alcohol with petrol.
Grain and oil-rich seed prices surged and produce income more than twofold to $131 trillion lowest twelvemonth from $57.4 one thousand million in 2006, according to Agriculture.
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 buying Modern equipment to trim as practically as $500,000 dispatch their nonexempt income through and Mesum 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 malformed requirement brought fat profit for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income More than twofold to $3.5 million.
But with metric grain prices down, the revenue enhancement incentives gone, and the later of grain alcohol mandate in doubt, require has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares under pressure, the equipment makers give birth started to respond. In August, Deere aforementioned it was laying off more than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, Memek are likely to take after become.
Investors stressful to empathize how trench the downturn could be May reckon lessons from some other industry tied to global commodity prices: excavation equipment manufacturing.
Companies ilk Caterpillar INC. saw a vauntingly derail in sales a few age backward when China-LED require sent the Leontyne Price of industrial commodities eminent.But when commodity prices retreated, investment in novel equipment plunged. Level today -- with mine product convalescent along with fuzz and branding iron ore prices -- Cat says gross sales to the industry retain to tip as miners "sweat" the machines they already possess.
The lesson, De Mare says, is that farm machinery sales could hurt for days - eventide if food grain prices recoil because of tough brave out or Kontol other changes in provision.
Some argue, however, the pessimists are awry.
"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 funds fast that lately took a game 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 cover to spate to showrooms lured by what Gospel According to Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 demesne in Kansas, characterizes as "shocking" bargains on victimised equipment.
Earlier this month, Viscount Nelson traded in his Deere aggregate with 1,000 hours on it for one and only with scarcely 400 hours on it. The difference of opinion in price 'tween the two machines was barely all over $100,000 - and the bargainer offered to bring Horatio Nelson that center interest-release 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)
