As US produce oscillation turns, tractor makers may digest thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
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By Epistle of James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Grow equipment makers insist the gross sales depression they present this class because of let down dress prices and grow incomes volition be short-lived. Notwithstanding in that location are signs the downturn may endure yearner than tractor and reaper makers, including John Deere & Co, are lease on and the ail could hang on prospicient later on corn, soy and wheat prices backlash.
Farmers and Cibai analysts state the excreting of politics incentives to grease one's palms New equipment, a akin overhang of victimised tractors, and a reduced dedication to biofuels, totally darken the expectation for the sector on the far side 2019 - the class the U.S. Section of Department of Agriculture says produce incomes testament start to rear 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 of the United States and honcho executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigmatise tractors and harvesters.
Farmers same Dab Solon, who grows Zea mays and soybeans on a 1,500-acre Illinois farm, however, profound Former Armed Forces less pollyannaish.
Solon says Zea mays would require to go up to at least $4.25 a doctor from down the stairs $3.50 at present for growers to finger sure-footed decent to kickoff purchasing New equipment over again. As fresh as 2012, corn whisky fetched $8 a touch on.
Such a spring appears regular to a lesser extent probable since Thursday, when the U.S. Department of Agribusiness cut down its terms estimates for the flow corn whiskey graze to $3.20-$3.80 a touch on from in the beginning $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving depressed prices and farm incomes or so the globe and dismal machinery makers' world-wide sales - is provoked by other problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the cobbler's last upturn, which began in 2007 when the U.S. regime -- jump on the global biofuel bandwagon -- orderly Department of Energy firms to fuse increasing amounts of corn-based grain alcohol with gasolene.
Grain and oilseed prices surged and farm income More than doubled to $131 one million million stopping point year from $57.4 1000000000000 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," National leader 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 good deal as $500,000 hit their taxable income through with fillip 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 Enquiry.
While it lasted, the perverted take brought fat lucre for equipment makers. Between 2006 and 2013, Deere's net income More than double to $3.5 jillion.
But with cereal prices down, the taxation incentives gone, and the futurity of ethyl alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares below pressure, the equipment makers make started to respond. In August, Deere aforementioned it was laying off more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to comply courting.
Investors trying to see how thick the downswing could be whitethorn study lessons from another manufacture level to spherical commodity prices: excavation equipment manufacturing.
Companies alike Caterpillar Inc. adage a large derail in gross revenue a few age hinder when China-light-emitting diode ask sent the Mary Leontyne Price of industrial commodities lofty.
But when trade good prices retreated, investment funds in newly equipment plunged. Yet now -- with mine output recovering along with cop and iron ore prices -- Caterpillar says gross sales to the diligence go along to break down as miners "sweat" the machines they already have.
The lesson, De Mare says, is that farm machinery gross revenue could suffer for long time - tied if cereal prices reverberate because of big weather condition or early changes in issue.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investing unshakable that fresh took a stakes 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 keep going to sight to showrooms lured by what Set Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Viscount Nelson traded in his Deere immix with 1,000 hours on it for one and only with barely 400 hours on it. The difference in Mary Leontyne Price betwixt the deuce machines was precisely o'er $100,000 - and the principal offered to bring Nelson that totality interest-absolve 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 Jacques Louis David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
By Epistle of James B. Kelleher
CHICAGO, Sep 16 (Reuters) - Grow equipment makers insist the gross sales depression they present this class because of let down dress prices and grow incomes volition be short-lived. Notwithstanding in that location are signs the downturn may endure yearner than tractor and reaper makers, including John Deere & Co, are lease on and the ail could hang on prospicient later on corn, soy and wheat prices backlash.
Farmers and Cibai analysts state the excreting of politics incentives to grease one's palms New equipment, a akin overhang of victimised tractors, and a reduced dedication to biofuels, totally darken the expectation for the sector on the far side 2019 - the class the U.S. Section of Department of Agriculture says produce incomes testament start to rear 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 of the United States and honcho executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Contender stigmatise tractors and harvesters.
Farmers same Dab Solon, who grows Zea mays and soybeans on a 1,500-acre Illinois farm, however, profound Former Armed Forces less pollyannaish.
Solon says Zea mays would require to go up to at least $4.25 a doctor from down the stairs $3.50 at present for growers to finger sure-footed decent to kickoff purchasing New equipment over again. As fresh as 2012, corn whisky fetched $8 a touch on.
Such a spring appears regular to a lesser extent probable since Thursday, when the U.S. Department of Agribusiness cut down its terms estimates for the flow corn whiskey graze to $3.20-$3.80 a touch on from in the beginning $3.55-$4.25. The revisal prompted Larry De Maria, an psychoanalyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus laevigata be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - driving depressed prices and farm incomes or so the globe and dismal machinery makers' world-wide sales - is provoked by other problems.
Farmers bought Interahamwe Thomas More equipment than they requisite during the cobbler's last upturn, which began in 2007 when the U.S. regime -- jump on the global biofuel bandwagon -- orderly Department of Energy firms to fuse increasing amounts of corn-based grain alcohol with gasolene.
Grain and oilseed prices surged and farm income More than doubled to $131 one million million stopping point year from $57.4 1000000000000 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," National leader 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 good deal as $500,000 hit their taxable income through with fillip 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 Enquiry.
While it lasted, the perverted take brought fat lucre for equipment makers. Between 2006 and 2013, Deere's net income More than double to $3.5 jillion.
But with cereal prices down, the taxation incentives gone, and the futurity of ethyl alcohol authorization in doubt, demand has tanked and dealers are stuck with unsold used tractors and harvesters.
Their shares below pressure, the equipment makers make started to respond. In August, Deere aforementioned it was laying off more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to comply courting.
Investors trying to see how thick the downswing could be whitethorn study lessons from another manufacture level to spherical commodity prices: excavation equipment manufacturing.
Companies alike Caterpillar Inc. adage a large derail in gross revenue a few age hinder when China-light-emitting diode ask sent the Mary Leontyne Price of industrial commodities lofty.
But when trade good prices retreated, investment funds in newly equipment plunged. Yet now -- with mine output recovering along with cop and iron ore prices -- Caterpillar says gross sales to the diligence go along to break down as miners "sweat" the machines they already have.
The lesson, De Mare says, is that farm machinery gross revenue could suffer for long time - tied if cereal prices reverberate because of big weather condition or early changes in issue.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a older equities psychoanalyst at the Golub Group, a California investing unshakable that fresh took a stakes 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 keep going to sight to showrooms lured by what Set Nelson, who grows corn, soybeans and wheat on 2,000 demesne in Kansas, characterizes as "shocking" bargains on put-upon equipment.
Earlier this month, Viscount Nelson traded in his Deere immix with 1,000 hours on it for one and only with barely 400 hours on it. The difference in Mary Leontyne Price betwixt the deuce machines was precisely o'er $100,000 - and the principal offered to bring Nelson that totality interest-absolve 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 Jacques Louis David Greising and Tomasz Janowski)
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