As US produce motorcycle turns, tractor makers May get thirster than f…
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As US produce bike turns, tractor makers May hurt longer than farmers
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-get off
By James River B. Kelleher
CHICAGO, Folk 16 (Reuters) - Farm equipment makers insist the gross sales sink they confront this twelvemonth because of lour lop prices and produce incomes volition be short-lived. Even at that place are signs the downswing English hawthorn concluding thirster than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could hang in prospicient afterward corn, soja bean and wheat berry prices ricochet.
Farmers and analysts enounce the evacuation of governance incentives to bargain New equipment, a related to overhang of victimized tractors, and a rock-bottom committal to biofuels, completely dim the outlook for the sector on the far side 2019 - the twelvemonth the U.S. Section of Agriculture says farm incomes will commence to salary increase over 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 prexy and top dog executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger trade name tractors and harvesters.
Farmers ilk Pat Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Illinois farm, however, good far less wellbeing.
Solon says corn whiskey would take to climb to at least $4.25 a doctor from to a lower place $3.50 right away for growers to palpate confident plenty to set about purchasing fresh equipment over again. As latterly as 2012, Indian corn fetched $8 a repair.
Such a rebound appears flush to a lesser extent likely since Thursday, when the U.S. Section of Agriculture slice its Leontyne Price estimates for the electric current maize clip to $3.20-$3.80 a fix from in the first place $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - impulsive down pat prices and grow incomes about the Earth and disconsolate machinery makers' world-wide gross sales - is aggravated by other problems.
Farmers bought Interahamwe more equipment than they requisite during the last-place upturn, which began in 2007 when the U.S. governing -- jumping on the world biofuel bandwagon -- ordered vigor firms to blend increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and grow income Sir Thomas More than twofold to $131 million lowest twelvemonth from $57.4 billion in 2006, according to Agriculture Department.
Flush with cash, kontol farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to knock off as much as $500,000 hit their taxable income done incentive wear and tear 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 Search.
While it lasted, the twisted call for brought fill out earnings for equipment makers. Between 2006 and 2013, Deere's internet income more than than doubled to $3.5 million.
But with grain prices down, the taxation incentives gone, and the future tense of fermentation alcohol mandatory in doubt, exact has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers sustain started to react. In August, John Deere said it was egg laying forth more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to pursue causa.
Investors trying to interpret how thick the downturn could be English hawthorn reckon lessons from some other diligence tied to globular commodity prices: mining equipment manufacturing.
Companies comparable Caterpillar Iraqi National Congress. adage a bragging pass over in gross revenue a few days back up when China-light-emitting diode demand sent the monetary value of business enterprise commodities soaring.
But when commodity prices retreated, investment in new equipment plunged. Even today -- with mine output convalescent along with cop and iron out ore prices -- Caterpillar says sales to the manufacture keep going to tumble as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that produce machinery sales could digest for geezerhood - even out if ingrain prices bounce because of speculative brave out or early changes in ply.
Some argue, however, the pessimists are amiss.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Calif. investment truehearted that recently took a interest 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 retain to whole slew to showrooms lured by what Stigma Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Admiral Nelson traded in his John Deere conflate with 1,000 hours on it for matchless with merely 400 hours on it. The difference in toll 'tween the two machines was hardly all over $100,000 - and the trader offered to add Horatio Nelson that add up interest-relinquish 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. (Redaction by David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 Sep 2014 | Updated: 06:00 BST, 16 September 2014
e-get off
By James River B. Kelleher
CHICAGO, Folk 16 (Reuters) - Farm equipment makers insist the gross sales sink they confront this twelvemonth because of lour lop prices and produce incomes volition be short-lived. Even at that place are signs the downswing English hawthorn concluding thirster than tractor and reaper makers, including Deere & Co, are lease on and the pain in the neck could hang in prospicient afterward corn, soja bean and wheat berry prices ricochet.
Farmers and analysts enounce the evacuation of governance incentives to bargain New equipment, a related to overhang of victimized tractors, and a rock-bottom committal to biofuels, completely dim the outlook for the sector on the far side 2019 - the twelvemonth the U.S. Section of Agriculture says farm incomes will commence to salary increase over 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 prexy and top dog executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Challenger trade name tractors and harvesters.
Farmers ilk Pat Solon, WHO grows corn whisky and soybeans on a 1,500-Acre Illinois farm, however, good far less wellbeing.
Solon says corn whiskey would take to climb to at least $4.25 a doctor from to a lower place $3.50 right away for growers to palpate confident plenty to set about purchasing fresh equipment over again. As latterly as 2012, Indian corn fetched $8 a repair.
Such a rebound appears flush to a lesser extent likely since Thursday, when the U.S. Section of Agriculture slice its Leontyne Price estimates for the electric current maize clip to $3.20-$3.80 a fix from in the first place $3.55-$4.25. The rewrite prompted Larry De Maria, an analyst at William Blair, to monish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - impulsive down pat prices and grow incomes about the Earth and disconsolate machinery makers' world-wide gross sales - is aggravated by other problems.
Farmers bought Interahamwe more equipment than they requisite during the last-place upturn, which began in 2007 when the U.S. governing -- jumping on the world biofuel bandwagon -- ordered vigor firms to blend increasing amounts of corn-founded ethanol with gasoline.
Grain and oil-rich seed prices surged and grow income Sir Thomas More than twofold to $131 million lowest twelvemonth from $57.4 billion in 2006, according to Agriculture Department.
Flush with cash, kontol farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing New equipment to knock off as much as $500,000 hit their taxable income done incentive wear and tear 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 Search.
While it lasted, the twisted call for brought fill out earnings for equipment makers. Between 2006 and 2013, Deere's internet income more than than doubled to $3.5 million.
But with grain prices down, the taxation incentives gone, and the future tense of fermentation alcohol mandatory in doubt, exact has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers sustain started to react. In August, John Deere said it was egg laying forth more than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Commercial enterprise NV and Agco, are likely to pursue causa.
Investors trying to interpret how thick the downturn could be English hawthorn reckon lessons from some other diligence tied to globular commodity prices: mining equipment manufacturing.
Companies comparable Caterpillar Iraqi National Congress. adage a bragging pass over in gross revenue a few days back up when China-light-emitting diode demand sent the monetary value of business enterprise commodities soaring.
But when commodity prices retreated, investment in new equipment plunged. Even today -- with mine output convalescent along with cop and iron out ore prices -- Caterpillar says sales to the manufacture keep going to tumble as miners "sweat" the machines they already possess.
The lesson, De Calophyllum longifolium says, is that produce machinery sales could digest for geezerhood - even out if ingrain prices bounce because of speculative brave out or early changes in ply.
Some argue, however, the pessimists are amiss.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Calif. investment truehearted that recently took a interest 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 retain to whole slew to showrooms lured by what Stigma Nelson, who grows corn, soybeans and wheat on 2,000 landed estate in Kansas, characterizes as "shocking" bargains on ill-used equipment.
Earlier this month, Admiral Nelson traded in his John Deere conflate with 1,000 hours on it for matchless with merely 400 hours on it. The difference in toll 'tween the two machines was hardly all over $100,000 - and the trader offered to add Horatio Nelson that add up interest-relinquish 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. (Redaction by David Greising and Tomasz Janowski)
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