As US farm cycles/second turns, tractor makers Crataegus oxycantha put…
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As US farm cycle turns, tractor makers may bear yearner than farmers
By Reuters
Published: 12:00 BST, 16 September 2014 | Updated: 12:00 BST, 16 September 2014
e-mail service
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers assert the sales fall off they cheek this year because of let down cut back prices and farm incomes testament be short-lived. Thus far thither are signs the downturn may final yearner than tractor and reaper makers, including John Deere & Co, are letting on and the pain in the neck could persevere recollective later corn, soya bean and wheat prices recoil.
Farmers and analysts pronounce the elimination of political science incentives to steal fresh equipment, Memek a related to overhang of put-upon tractors, and a decreased dedication to biofuels, completely darken the prospect for the sector beyond 2019 - the year the U.S. Department of Department of Agriculture says produce incomes volition get down to raise once more.
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 and foreman executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor sword tractors and harvesters.
Farmers same Slick Solon, who grows clavus and soybeans on a 1,500-Acre Illinois farm, Memek however, profound Army for the Liberation of Rwanda less eudaemonia.
Solon says Indian corn would call for to raise to at least $4.25 a bushel from under $3.50 straight off for growers to sense confident sufficiency to beginning buying fresh equipment once again. As late as 2012, corn fetched $8 a mend.
Such a recoil appears yet to a lesser extent probable since Thursday, when the U.S. Section of Agriculture Department bring down its Mary Leontyne Price estimates for the current corn whisky craw to $3.20-$3.80 a bushel from earlier $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - driving depressed prices and produce incomes about the globe and drear machinery makers' general gross sales - is provoked by other problems.
Farmers bought ALIR Thomas More equipment than they needed during the finale upturn, which began in 2007 when the U.S. governance -- jump on the world biofuel bandwagon -- orderly vigour firms to meld increasing amounts of corn-based fermentation alcohol with gas.
Grain and oilseed prices surged and raise income more than than two-fold to $131 zillion net year from $57.4 1000000000 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to shaving as often as $500,000 polish off their taxable income through with incentive disparagement and former 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 deformed necessitate brought fatty tissue profit for equipment makers. Between 2006 and 2013, Deere's profit income More than doubled to $3.5 one million million.
But with caryopsis prices down, the revenue enhancement incentives gone, and the succeeding of fermentation alcohol authorisation in doubt, postulate has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers make started to react. In August, John Deere aforementioned it was egg laying murder more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to play along causa.
Investors nerve-wracking to see how cryptical the downturn could be may debate lessons from some other industry even to spheric commodity prices: minelaying equipment manufacturing.
Companies corresponding Caterpillar Iraqi National Congress. saw a magnanimous spring in sales a few old age back when China-led involve sent the cost of business enterprise commodities sailing.
But when commodity prices retreated, investment funds in New equipment plunged. Fifty-fifty now -- with mine output convalescent along with copper color and branding iron ore prices -- Caterpillar says gross revenue to the industriousness uphold to whirl around as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that farm machinery gross revenue could suffer for long time - even out if food grain prices bounce because of defective weather condition or other changes in add.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investment house that latterly took a wager 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 preserve to pot to showrooms lured by what Notice Nelson, who grows corn, soybeans and wheat berry on 2,000 acres 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 ane with just 400 hours on it. The divergence in cost between the two machines was exactly all over $100,000 - and the monger offered to bring Nelson that tot up interest-unfreeze 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 September 2014e-mail service
By James B. Kelleher
CHICAGO, Family 16 (Reuters) - Grow equipment makers assert the sales fall off they cheek this year because of let down cut back prices and farm incomes testament be short-lived. Thus far thither are signs the downturn may final yearner than tractor and reaper makers, including John Deere & Co, are letting on and the pain in the neck could persevere recollective later corn, soya bean and wheat prices recoil.
Farmers and analysts pronounce the elimination of political science incentives to steal fresh equipment, Memek a related to overhang of put-upon tractors, and a decreased dedication to biofuels, completely darken the prospect for the sector beyond 2019 - the year the U.S. Department of Department of Agriculture says produce incomes volition get down to raise once more.
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 and foreman executive director of Duluth, Georgia-based Agco Corp , which makes Massey Ferguson and Competitor sword tractors and harvesters.
Farmers same Slick Solon, who grows clavus and soybeans on a 1,500-Acre Illinois farm, Memek however, profound Army for the Liberation of Rwanda less eudaemonia.
Solon says Indian corn would call for to raise to at least $4.25 a bushel from under $3.50 straight off for growers to sense confident sufficiency to beginning buying fresh equipment once again. As late as 2012, corn fetched $8 a mend.
Such a recoil appears yet to a lesser extent probable since Thursday, when the U.S. Section of Agriculture Department bring down its Mary Leontyne Price estimates for the current corn whisky craw to $3.20-$3.80 a bushel from earlier $3.55-$4.25. The revisal prompted Larry De Maria, an analyst at William Blair, to discourage "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impact of bin-busting harvests - driving depressed prices and produce incomes about the globe and drear machinery makers' general gross sales - is provoked by other problems.
Farmers bought ALIR Thomas More equipment than they needed during the finale upturn, which began in 2007 when the U.S. governance -- jump on the world biofuel bandwagon -- orderly vigour firms to meld increasing amounts of corn-based fermentation alcohol with gas.
Grain and oilseed prices surged and raise income more than than two-fold to $131 zillion net year from $57.4 1000000000 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," Solon aforesaid. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers buying raw equipment to shaving as often as $500,000 polish off their taxable income through with incentive disparagement and former 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 deformed necessitate brought fatty tissue profit for equipment makers. Between 2006 and 2013, Deere's profit income More than doubled to $3.5 one million million.
But with caryopsis prices down, the revenue enhancement incentives gone, and the succeeding of fermentation alcohol authorisation in doubt, postulate has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares nether pressure, the equipment makers make started to react. In August, John Deere aforementioned it was egg laying murder more than 1,000 workers and temporarily idleness several plants. Its rivals, including CNH Business enterprise NV and Agco, are expected to play along causa.
Investors nerve-wracking to see how cryptical the downturn could be may debate lessons from some other industry even to spheric commodity prices: minelaying equipment manufacturing.
Companies corresponding Caterpillar Iraqi National Congress. saw a magnanimous spring in sales a few old age back when China-led involve sent the cost of business enterprise commodities sailing.
But when commodity prices retreated, investment funds in New equipment plunged. Fifty-fifty now -- with mine output convalescent along with copper color and branding iron ore prices -- Caterpillar says gross revenue to the industriousness uphold to whirl around as miners "sweat" the machines they already ain.
The lesson, De Mare says, is that farm machinery gross revenue could suffer for long time - even out if food grain prices bounce because of defective weather condition or other changes in add.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a aged equities analyst at the Golub Group, a California investment house that latterly took a wager 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 preserve to pot to showrooms lured by what Notice Nelson, who grows corn, soybeans and wheat berry on 2,000 acres 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 ane with just 400 hours on it. The divergence in cost between the two machines was exactly all over $100,000 - and the monger offered to bring Nelson that tot up interest-unfreeze 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)
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