Tag Archives: press-releases
Metso To Supply Biomass Heating Plant In Finland
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Analysis – Lower Crop Prices A Pain For Deere, But Farmers Are Fine
http://s1.reutersmed…r=CBRE97E0YUC00 By James B. Kelleher CHICAGO | Thu Aug 15, 2013 1:32pm BST (Reuters) – Wall Street’s frosty reaction on Wednesday to Deere & Co’s ( DE.N ) latest quarterly earnings is no surprise given the recent sharp drop in agricultural commodity prices. Farmers buy fewer tractors and harvesters when corn and soybean prices are down. But the dramatic drops in corn and other prices over the past year are not causing a lot of pain on the farms. At least not yet. With income at records highs, farmland fetching top dollar and balance sheets strong, a drop in grain prices in the face of another record crop is hardly a sign of doom for growers. Lower prices are generating a lot of uncertainty around Deere, however. For the world’s largest maker of tractors and harvesters, as goes the price of corn, so too goes the price of the company’s shares. Deere prefers to talk about the correlation between farm cash receipts and the sales of its distinctive green and yellow equipment. And it is true that the two move up and down in tandem. But the correlation between its stock price and the price of corn on the Chicago Board of Trade is pretty high, too. That is why the last few years have been so good to Deere: Both corn prices and farm income were on a tear. For decades, corn prices hovered between $2 (£1.29) and $3 (£1.93) a bushel, but they surged as high as $8.49 a bushel during last summer’s drought. Supplies were tight, even as demand from China and other emerging markets increased along with rising corn-based ethanol use in the United States. Net farm income has doubled over the past five years, according to the U.S. Department of Agriculture’s Economic Research Service. Surging corn prices and rising production have been big factors. Farm balance sheets are strong, too. Net farm assets have risen by nearly $700 billion since 2009, according to the USDA, while net debt has gone up by just $40 billion. That is why the last few years have been so good to the top and bottom lines at Deere and its rivals in the farm equipment space, including Agco Corp ( AGCO.N ) and CNH Global NV CNH.N. Between 2009 and 2012, Deere’s farm machinery sales grew 60 percent and its diluted earnings per share jumped 270 percent. Deere continues to benefit from flush farmers. In the results released on Wednesday, Deere said its profit jumped nearly 30 percent, even though sales were only up 4 percent. The company, in a nutshell, was able to sock it to farmers price wise. But the company’s shares, which have underperformed the broader market all year long, fell as much as 3 percent following Wednesday’s report. The disconnect is all about expectations. The U.S. Department of Agriculture on Monday forecast a record corn harvest in 2013, which pushed the price down to $4.55 a bushel, near a three-year low. Now farmers – notoriously conservative – are widely expected to cut back on spending for equipment and acreage, which have also spiked in recent years. No one is expecting a catastrophic decline in the purchase of tractors, combines and other farm implements. Deere believes farmers’ cash receipts will fall 4 percent next year after a sharper 8 percent decline this year. Why would a 50 percent drop in corn prices result in a much more modest hit for farmers? Well, cash receipts are a function of both quantity and price. Corn was a lot more expensive last year, but the drought cut into yields. What’s more, farm income can include all kinds of non-crop revenue such as government payments, and crop and revenue insurance. Farmers also have lots of storage capacity, so they do not have to sell at current prices. They can store their grain instead. Add it up. Lower expected farm receipts + lower corn prices = double trouble for Deere shareholders. That is why many analysts who cover Deere, including Adam Fleck at Morningstar, expect the next few years to be tough for the company. “We’re a far cry from the farm crisis of the 1970s and 1980s,” said Fleck. “But the cold hard fact is farmers can always run a tractor one more year.” Lower corn and soybean prices, combined with the possibility of lower farmland values and higher interest rates, are coming together in a bad way for equipment manufacturers already facing several years of really difficult comparisons. Unlike farmers, Deere does not have a bin where it can store unsold farm equipment. It can’t stockpile tractors and combines and wait for the farmers to return. Deere, and perhaps its stockholders, might just have to tough this one out. (Additional reporting by Gavin Maguire.; Editing by David Greising and Andre Grenon) Continue reading
US Land Prices ‘Surge’ Despite Fall In Ag Profits
15 th Aug 2013, by Agrimoney.com Farmland prices in major US agricultural states defied weakening farm incomes to maintain strong gains – in some cases, accelerating – although many bankers feel they may now “have peaked”. Farmland prices in Plains states including Kansas, the top wheat-growing state, and Nebraska, a major corn and soybean producer “surged further” during the April-to-June quarter, the US central bank said. Prices of non-irrigated farms were 18.3% higher than a year before, with those of watered land soaring 25%, faster than the 21% growth recorded in the first three months of the year. “Despite expectations of weaker farm income, district farmland values continued to set records,” the Federal Reserve’s Kansas City bank said. The period “marks the ninth consecutive quarter in which irrigated cropland values have risen more than 20% year over year”, with lingering dryness in some area increasing the premium over land without access to water supplies. Weak income prospects The increase defied dents to farm income from weaker winter wheat yields and prices, and falling cattle values, “although an uptick in hog prices improved profitability for some hog producers”, the bank said. And prospects for farm takings remain “weak for the rest of the year throughout the district”, given weaker prices of corn and soybeans, harvested in the autumn. “Not only would lower crop prices reduce farm income, but persistent drought in parts of the district could limit yield potential, particularly in areas without irrigation,” the Fed said. “With lower expected prices and the possibility of a poor harvest,” lenders contacted for the Fed survey “expected farm income to be less than last year in each state in the district”, which also includes Colorado, Missouri, New Mexico and Wyoming. ‘Overall wealth’ However, it was a dearth of other investment opportunities, for farmers enriched by a strong period for farm incomes, rather than hopes for agricultural returns which was incentivising land purchases “Bankers indicated that expected farm income was not the main factor contributing to the value of farmland,” the Fed said. “Instead, bankers cited the overall wealth level of the farm sector, supported by several years of strong income, as the primary driver of farmland values. “Low interest rates and a lack of alternative investment options were also noted as significant factors.” Price forecasts Nonetheless, lenders expressed doubts as to how long this effect might last in the face of weakened revenue prospects. “While most bankers expected farmland values to remain at current levels, an increasing number of respondents felt farmland values may have peaked,” the fed said. “More bankers also expected farmland values to drop after harvest likely due, at least partially, to expectations of lower farm income,” although the decline was expected to be less than 10% over the next year. Weaker farm prosperity has already become evident in farm credit markets, with loan demand rising for the first time in three years, and repayment rates on borrowings weakening too, and expected to keep falling. The data follow a debate at an investor call by Deere & Co on Wednesday at which analysts persistently questioned forecasts by the tractor maker that cash farm receipts, a key indicator of machinery purchases, will fall only slightly in 2014, despite tumbling crop prices. Continue reading
