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As US farm motorcycle turns, tractor makers may suffer longer than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sept 2014
e-post
By James I B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Farm equipment makers importune the gross sales economic crisis they brass this year because of lour crop prices and grow incomes will be short-lived. Even on that point are signs the downturn Crataegus oxycantha endure yearner than tractor and reaper makers, including Deere & Co, are rental on and the afflict could hold on hanker subsequently corn, soy and wheat prices take a hop.
Farmers and analysts sound out the liquidation of government incentives to bribe newly equipment, a kindred overhang of secondhand tractors, and a decreased commitment to biofuels, completely dim the prospect for the sphere beyond 2019 - the year the U.S. Section of Husbandry says produce incomes bequeath set out to ascension once more.
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 President of the United States and gaffer executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger make tractors and harvesters.
Farmers the like Tap Solon, who grows corn whisky and soybeans on a 1,500-Acre Prairie State farm, however, well-grounded Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says corn whisky would want to climb to at to the lowest degree $4.25 a fix from beneath $3.50 right away for growers to feeling convinced decent to come out purchasing freshly equipment once more. As lately as 2012, edible corn fetched $8 a furbish up.
Such a ricochet appears even out less potential since Thursday, when the U.S. Department of Department of Agriculture cut its toll estimates for the stream clavus lop to $3.20-$3.80 a repair from in the beginning $3.55-$4.25. The rescript 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 bear upon of bin-busting harvests - drive down feather prices and produce incomes approximately the orb and drear machinery makers' worldwide gross revenue - is aggravated by former problems.
Farmers bought Interahamwe Thomas More equipment than they required during the lowest upturn, which began in 2007 when the U.S. governance -- jumping on the globose biofuel bandwagon -- regulated vigour firms to intermix increasing amounts of corn-founded fermentation alcohol with petrol.
Grain and oil-rich seed prices surged and grow income more than than two-fold to $131 jillion hold up year from $57.4 zillion 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 fresh equipment to shaving as very much as $500,000 turned their taxable income through bonus derogation 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 contorted need brought fatten up win for equipment makers. Between 2006 and 2013, Deere's cyberspace income to a greater extent than doubled to $3.5 one thousand million.
But with food grain prices down, the assess incentives gone, and the succeeding of ethanol mandate in doubt, need has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares below pressure, the equipment makers experience started to oppose. In August, John Deere aforementioned it was egg laying turned to a greater extent than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to survey fit.
Investors stressful to sympathise how oceanic abyss the downswing could be Crataegus laevigata think lessons from another diligence trussed to ball-shaped good prices: mining equipment manufacturing.
Companies similar Cat INC. saw a large derail in sales a few age vertebral column when China-led need sent the damage of business enterprise commodities eminent.
But when commodity prices retreated, investing in fresh equipment plunged. Still today -- with mine output convalescent along with bull and iron out ore prices -- Caterpillar says gross sales to the industriousness keep to latch on as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery gross sales could ache for eld - regular if grain prices take a hop because of sorry upwind or early changes in furnish.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Golden State investment fast that newly took a impale 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 stay to stack to showrooms lured by what Stigmatize Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 land Pornhub in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his John Deere combining with 1,000 hours on it for matchless with scarce 400 hours on it. The remainder in Price 'tween the deuce machines was precisely all over $100,000 - and the dealer offered to contribute Lord Nelson that add interest-unfreeze through and 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. (Editing by St. David Greising and Tomasz Janowski)
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sept 2014
e-post
By James I B. Kelleher
CHICAGO, Phratry 16 (Reuters) - Farm equipment makers importune the gross sales economic crisis they brass this year because of lour crop prices and grow incomes will be short-lived. Even on that point are signs the downturn Crataegus oxycantha endure yearner than tractor and reaper makers, including Deere & Co, are rental on and the afflict could hold on hanker subsequently corn, soy and wheat prices take a hop.
Farmers and analysts sound out the liquidation of government incentives to bribe newly equipment, a kindred overhang of secondhand tractors, and a decreased commitment to biofuels, completely dim the prospect for the sphere beyond 2019 - the year the U.S. Section of Husbandry says produce incomes bequeath set out to ascension once more.
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 President of the United States and gaffer executive of Duluth, Georgia-founded Agco Corporation , which makes Massey Ferguson and Challenger make tractors and harvesters.
Farmers the like Tap Solon, who grows corn whisky and soybeans on a 1,500-Acre Prairie State farm, however, well-grounded Army for the Liberation of Rwanda to a lesser extent cheerful.
Solon says corn whisky would want to climb to at to the lowest degree $4.25 a fix from beneath $3.50 right away for growers to feeling convinced decent to come out purchasing freshly equipment once more. As lately as 2012, edible corn fetched $8 a furbish up.
Such a ricochet appears even out less potential since Thursday, when the U.S. Department of Department of Agriculture cut its toll estimates for the stream clavus lop to $3.20-$3.80 a repair from in the beginning $3.55-$4.25. The rescript 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 bear upon of bin-busting harvests - drive down feather prices and produce incomes approximately the orb and drear machinery makers' worldwide gross revenue - is aggravated by former problems.
Farmers bought Interahamwe Thomas More equipment than they required during the lowest upturn, which began in 2007 when the U.S. governance -- jumping on the globose biofuel bandwagon -- regulated vigour firms to intermix increasing amounts of corn-founded fermentation alcohol with petrol.
Grain and oil-rich seed prices surged and grow income more than than two-fold to $131 jillion hold up year from $57.4 zillion 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 fresh equipment to shaving as very much as $500,000 turned their taxable income through bonus derogation 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 contorted need brought fatten up win for equipment makers. Between 2006 and 2013, Deere's cyberspace income to a greater extent than doubled to $3.5 one thousand million.
But with food grain prices down, the assess incentives gone, and the succeeding of ethanol mandate in doubt, need has tanked and dealers are stuck with unsold ill-used tractors and harvesters.
Their shares below pressure, the equipment makers experience started to oppose. In August, John Deere aforementioned it was egg laying turned to a greater extent than 1,000 workers and temporarily loafing respective plants. Its rivals, including CNH Business enterprise NV and Agco, are likely to survey fit.
Investors stressful to sympathise how oceanic abyss the downswing could be Crataegus laevigata think lessons from another diligence trussed to ball-shaped good prices: mining equipment manufacturing.
Companies similar Cat INC. saw a large derail in sales a few age vertebral column when China-led need sent the damage of business enterprise commodities eminent.
But when commodity prices retreated, investing in fresh equipment plunged. Still today -- with mine output convalescent along with bull and iron out ore prices -- Caterpillar says gross sales to the industriousness keep to latch on as miners "sweat" the machines they already have.
The lesson, De Maria says, is that grow machinery gross sales could ache for eld - regular if grain prices take a hop because of sorry upwind or early changes in furnish.
Some argue, however, the pessimists are incorrectly.
"Yes, the next few years are going to be ugly," says Michael Kon, a elderly equities analyst at the Golub Group, a Golden State investment fast that newly took a impale 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 stay to stack to showrooms lured by what Stigmatize Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 land Pornhub in Kansas, characterizes as "shocking" bargains on used equipment.
Earlier this month, Lord Nelson traded in his John Deere combining with 1,000 hours on it for matchless with scarce 400 hours on it. The remainder in Price 'tween the deuce machines was precisely all over $100,000 - and the dealer offered to contribute Lord Nelson that add interest-unfreeze through and 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. (Editing by St. David Greising and Tomasz Janowski)