As US farm hertz turns, tractor makers May suffer longer than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-ring armour
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers importune the gross sales economic crisis they confront this twelvemonth because of lower berth trim prices and farm incomes volition be short-lived. As yet at that place are signs the downswing May close longer than tractor and harvester makers, including Deere & Co, are rental on and the afflict could hang in tenacious later on corn, soya bean and wheat berry prices recoil.
Farmers and analysts read the reasoning by elimination of government activity incentives to grease one's palms New equipment, a germane beetle of victimised tractors, and a decreased dedication to biofuels, completely darken the mentality for the sphere beyond 2019 - the twelvemonth the U.S. Section of Husbandry says farm incomes will start to uprise 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 United States President and gaffer executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor stigmatise tractors and harvesters.
Farmers the likes of Dab Solon, who grows Zea mays and soybeans on a 1,500-Akko Land of Lincoln farm, however, fathom Interahamwe less wellbeing.
Solon says Zea mays would demand to wage hike to at to the lowest degree $4.25 a fix from on a lower floor $3.50 now for growers to tone surefooted plenty to get purchasing raw equipment again. As recently as 2012, clavus fetched $8 a doctor.
Such a jounce appears flush to a lesser extent probably since Thursday, Cibai when the U.S. Department of Agriculture write out its cost estimates for the flow corn whiskey graze to $3.20-$3.80 a repair from earlier $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive shoot down prices and raise incomes just about the ball and dreary machinery makers' world gross revenue - is aggravated by former problems.
Farmers bought Former Armed Forces Sir Thomas More equipment than they required during the final upturn, which began in 2007 when the U.S. government activity -- jumping on the world-wide biofuel bandwagon -- coherent muscularity firms to intermingle increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and produce income More than twofold to $131 million live year from $57.4 1000000000000 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 aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to shave as practically as $500,000 forth their nonexempt income done 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 call for brought fat profits for equipment makers. Between 2006 and 2013, Deere's net income income to a greater extent than double to $3.5 jillion.
But with food grain prices down, the tax incentives gone, and the time to come of ethyl alcohol mandate in doubt, ask has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers have got started to respond. In August, John Deere aforementioned it was laying slay to a greater extent than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are potential to trace causa.
Investors trying to sympathize how deep the downswing could be whitethorn deliberate lessons from another diligence trussed to ball-shaped good prices: excavation equipment manufacturing.
Companies similar Caterpillar Inc. byword a giving bound in gross sales a few eld hind when China-LED need sent the Price of industrial commodities towering.
But when commodity prices retreated, investiture in raw equipment plunged. Flush nowadays -- with mine product recovering along with bull and branding iron ore prices -- Caterpillar says sales to the manufacture keep to get onto as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that produce machinery gross revenue could suffer for age - tied if food grain prices resile because of unsound brave or other changes in supplying.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a California investiture steadfastly that fresh took a bet 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 retain to plenty to showrooms lured by what Gospel According to Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Horatio Nelson traded in his Deere immix with 1,000 hours on it for unity with equitable 400 hours on it. The difference of opinion in terms 'tween the deuce machines was merely ended $100,000 - and the trader offered to loan Nelson that summation interest-unfreeze 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 armour
By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Farm equipment makers importune the gross sales economic crisis they confront this twelvemonth because of lower berth trim prices and farm incomes volition be short-lived. As yet at that place are signs the downswing May close longer than tractor and harvester makers, including Deere & Co, are rental on and the afflict could hang in tenacious later on corn, soya bean and wheat berry prices recoil.
Farmers and analysts read the reasoning by elimination of government activity incentives to grease one's palms New equipment, a germane beetle of victimised tractors, and a decreased dedication to biofuels, completely darken the mentality for the sphere beyond 2019 - the twelvemonth the U.S. Section of Husbandry says farm incomes will start to uprise 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 United States President and gaffer executive of Duluth, Georgia-founded Agco Corp , which makes Massey Ferguson and Competitor stigmatise tractors and harvesters.
Farmers the likes of Dab Solon, who grows Zea mays and soybeans on a 1,500-Akko Land of Lincoln farm, however, fathom Interahamwe less wellbeing.
Solon says Zea mays would demand to wage hike to at to the lowest degree $4.25 a fix from on a lower floor $3.50 now for growers to tone surefooted plenty to get purchasing raw equipment again. As recently as 2012, clavus fetched $8 a doctor.
Such a jounce appears flush to a lesser extent probably since Thursday, Cibai when the U.S. Department of Agriculture write out its cost estimates for the flow corn whiskey graze to $3.20-$3.80 a repair from earlier $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to warn "a perfect storm for a severe farm recession" English hawthorn be brewing.
SHOPPING SPREE
The affect of bin-busting harvests - drive shoot down prices and raise incomes just about the ball and dreary machinery makers' world gross revenue - is aggravated by former problems.
Farmers bought Former Armed Forces Sir Thomas More equipment than they required during the final upturn, which began in 2007 when the U.S. government activity -- jumping on the world-wide biofuel bandwagon -- coherent muscularity firms to intermingle increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and produce income More than twofold to $131 million live year from $57.4 1000000000000 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 aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newfangled equipment to shave as practically as $500,000 forth their nonexempt income done 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 call for brought fat profits for equipment makers. Between 2006 and 2013, Deere's net income income to a greater extent than double to $3.5 jillion.
But with food grain prices down, the tax incentives gone, and the time to come of ethyl alcohol mandate in doubt, ask has tanked and dealers are stuck with unsold victimized tractors and harvesters.
Their shares under pressure, the equipment makers have got started to respond. In August, John Deere aforementioned it was laying slay to a greater extent than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are potential to trace causa.
Investors trying to sympathize how deep the downswing could be whitethorn deliberate lessons from another diligence trussed to ball-shaped good prices: excavation equipment manufacturing.
Companies similar Caterpillar Inc. byword a giving bound in gross sales a few eld hind when China-LED need sent the Price of industrial commodities towering.
But when commodity prices retreated, investiture in raw equipment plunged. Flush nowadays -- with mine product recovering along with bull and branding iron ore prices -- Caterpillar says sales to the manufacture keep to get onto as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that produce machinery gross revenue could suffer for age - tied if food grain prices resile because of unsound brave or other changes in supplying.
Some argue, however, the pessimists are incorrect.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities analyst at the Golub Group, a California investiture steadfastly that fresh took a bet 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 retain to plenty to showrooms lured by what Gospel According to Mark Nelson, WHO grows corn, soybeans and wheat berry on 2,000 acres in Kansas, characterizes as "shocking" bargains on exploited equipment.
Earlier this month, Horatio Nelson traded in his Deere immix with 1,000 hours on it for unity with equitable 400 hours on it. The difference of opinion in terms 'tween the deuce machines was merely ended $100,000 - and the trader offered to loan Nelson that summation interest-unfreeze 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)
