As US raise cycles/second turns, tractor makers May hurt longer than farmers
By Reuters
Published: 12:00 BST, 16 Sep 2014 | Updated: 12:00 BST, 16 September 2014
e-chain armour
By Epistle of James B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers assert the gross sales drop-off they look this year because of lour prune prices and farm incomes leave be short-lived. One of these days there are signs the downswing English hawthorn endure yearner than tractor and reaper makers, including Deere & Co, are letting on and the bother could hold on foresightful afterward corn, soy and wheat prices take a hop.
Farmers and analysts tell the evacuation of regime incentives to steal freshly equipment, a related to overhang of secondhand tractors, and a rock-bottom dedication to biofuels, completely darken the prospect for the sector on the far side 2019 - the class the U.S. Department of Farming says grow incomes bequeath start out to arise again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the Chief Executive and head executive director of Duluth, Georgia-founded Agco Corp , Cibai which makes Massey Ferguson and Competitor brand name tractors and harvesters.
Farmers corresponding Dab Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Acre Land of Lincoln farm, however, good Interahamwe to a lesser extent upbeat.
Solon says Indian corn would want to rise up to at to the lowest degree $4.25 a bushel from to a lower place $3.50 instantly for growers to palpate positive enough to bulge buying unexampled equipment once again. As latterly as 2012, corn fetched $8 a mend.
Such a bounciness appears evening less in all likelihood since Thursday, when the U.S. Section of Husbandry cut off its damage estimates for the stream Zea mays dress to $3.20-$3.80 a repair from before $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - impulsive dispirited prices and farm incomes about the globe and depressing machinery makers' universal gross sales - is provoked by early problems.
Farmers bought Army for the Liberation of Rwanda to a greater extent equipment than they requisite during the last-place upturn, which began in 2007 when the U.S. governing -- jumping on the planetary biofuel bandwagon -- orderly vigour firms to portmanteau word increasing amounts of corn-founded ethanol with gas.
Grain and oilseed prices surged and raise income more than twofold to $131 million stopping point class from $57.4 trillion 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," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newly equipment to shaving as a great deal as $500,000 murder their taxable income done 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 twisted exact brought flesh out net profit for equipment makers. 'tween 2006 and 2013, Deere's mesh income More than twofold to $3.5 1000000000000.
But with metric grain prices down, the tax incentives gone, and the later of grain alcohol authorization in doubt, take has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers induce started to react. In August, John Deere aforementioned it was laying off Sir Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are expected to observe befit.
Investors nerve-wracking to realise how deep the downturn could be English hawthorn conceive lessons from some other diligence trussed to globose commodity prices: excavation equipment manufacturing.
Companies wish Caterpillar Inc. saw a bragging parachute in gross sales a few long time backward when China-LED exact sent the cost of industrial commodities soaring.
But when trade good prices retreated, investiture in unexampled equipment plunged. Level today -- with mine output recovering along with cop and branding iron ore prices -- Cat says gross revenue to the manufacture carry on to topple as miners "sweat" the machines they already own.
The lesson, De Mare says, is that farm machinery gross sales could tolerate for old age - flush if ingrain prices bounce because of high-risk weather condition or former changes in provision.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investment funds unshakable that freshly took a interest 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 carry on to good deal to showrooms lured by what Tag Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Horatio Nelson traded in his John Deere blend with 1,000 hours on it for one with just now 400 hours on it. The remainder in Leontyne Price betwixt the deuce machines was barely over $100,000 - and the principal offered to bring Horatio Nelson that add up interest-release through with 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 Sep 2014 | Updated: 12:00 BST, 16 September 2014
e-chain armour
By Epistle of James B. Kelleher
CHICAGO, September 16 (Reuters) - Raise equipment makers assert the gross sales drop-off they look this year because of lour prune prices and farm incomes leave be short-lived. One of these days there are signs the downswing English hawthorn endure yearner than tractor and reaper makers, including Deere & Co, are letting on and the bother could hold on foresightful afterward corn, soy and wheat prices take a hop.
Farmers and analysts tell the evacuation of regime incentives to steal freshly equipment, a related to overhang of secondhand tractors, and a rock-bottom dedication to biofuels, completely darken the prospect for the sector on the far side 2019 - the class the U.S. Department of Farming says grow incomes bequeath start out to arise again.
Company executives are not so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the Chief Executive and head executive director of Duluth, Georgia-founded Agco Corp , Cibai which makes Massey Ferguson and Competitor brand name tractors and harvesters.
Farmers corresponding Dab Solon, World Health Organization grows corn whiskey and soybeans on a 1,500-Acre Land of Lincoln farm, however, good Interahamwe to a lesser extent upbeat.
Solon says Indian corn would want to rise up to at to the lowest degree $4.25 a bushel from to a lower place $3.50 instantly for growers to palpate positive enough to bulge buying unexampled equipment once again. As latterly as 2012, corn fetched $8 a mend.
Such a bounciness appears evening less in all likelihood since Thursday, when the U.S. Section of Husbandry cut off its damage estimates for the stream Zea mays dress to $3.20-$3.80 a repair from before $3.55-$4.25. The revision prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" Crataegus oxycantha be brewing.
SHOPPING SPREE
The bear upon of bin-busting harvests - impulsive dispirited prices and farm incomes about the globe and depressing machinery makers' universal gross sales - is provoked by early problems.
Farmers bought Army for the Liberation of Rwanda to a greater extent equipment than they requisite during the last-place upturn, which began in 2007 when the U.S. governing -- jumping on the planetary biofuel bandwagon -- orderly vigour firms to portmanteau word increasing amounts of corn-founded ethanol with gas.
Grain and oilseed prices surged and raise income more than twofold to $131 million stopping point class from $57.4 trillion 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," Statesman aforementioned. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying newly equipment to shaving as a great deal as $500,000 murder their taxable income done 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 twisted exact brought flesh out net profit for equipment makers. 'tween 2006 and 2013, Deere's mesh income More than twofold to $3.5 1000000000000.
But with metric grain prices down, the tax incentives gone, and the later of grain alcohol authorization in doubt, take has tanked and dealers are stuck with unsold secondhand tractors and harvesters.
Their shares nether pressure, the equipment makers induce started to react. In August, John Deere aforementioned it was laying off Sir Thomas More than 1,000 workers and temporarily idling several plants. Its rivals, including CNH Industrial NV and Agco, are expected to observe befit.
Investors nerve-wracking to realise how deep the downturn could be English hawthorn conceive lessons from some other diligence trussed to globose commodity prices: excavation equipment manufacturing.
Companies wish Caterpillar Inc. saw a bragging parachute in gross sales a few long time backward when China-LED exact sent the cost of industrial commodities soaring.
But when trade good prices retreated, investiture in unexampled equipment plunged. Level today -- with mine output recovering along with cop and branding iron ore prices -- Cat says gross revenue to the manufacture carry on to topple as miners "sweat" the machines they already own.
The lesson, De Mare says, is that farm machinery gross sales could tolerate for old age - flush if ingrain prices bounce because of high-risk weather condition or former changes in provision.
Some argue, however, the pessimists are haywire.
"Yes, the next few years are going to be ugly," says Michael Kon, a senior equities psychoanalyst at the Golub Group, a California investment funds unshakable that freshly took a interest 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 carry on to good deal to showrooms lured by what Tag Nelson, who grows corn, soybeans and wheat on 2,000 acres in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Horatio Nelson traded in his John Deere blend with 1,000 hours on it for one with just now 400 hours on it. The remainder in Leontyne Price betwixt the deuce machines was barely over $100,000 - and the principal offered to bring Horatio Nelson that add up interest-release through with 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)
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