- Deere, a bellwether for the agriculture industry, cited uncertainty over trade relations with China as one factor that is making U.S. farmers reluctant to spend.
- China was the fourth-largest export market for U.S. agricultural goods in 2018, although farm sales to the country are expected to fall this year.
- U.S. farmers’ personal income fell a total of nearly $12 billion in the first three months of 2019.
The U.S.is taking a toll on employers in the nation’s heartland. Deere & Co. said Friday that farmers are delaying buying tractors and other major equipment given the uncertain demand for their crops.
The combination of heavy rains that have delayed planting in the Midwest and rising Chinese tariffs on U.S. agriculture exports are making farmers reluctant to invest in big-ticket items. As a result, Deere — a bellwether for the agriculture industry — lowered its outlook for 2019 to $3.3 billion from $3.6 billion. The company also expects equipment sales for the year to slow.
Shares of Deere, based in Moline, Illinois, fell more than 7% in afternoon trading.
“In addition to persistent uncertainty around global trade and market access, grain farmers are also contending with weather-related planting delays and uncertain near-term demand prospects due to African swine fever,” Deere Chief Financial Officer Ryan Campell said in a call with analysts to discuss the company’s latest results. “The resulting decline in commodity prices have taken a toll on farmer sentiment, and correspondingly, our large ag sales forecast has come down.”
Cory Reed, president of Deere’s worldwide agriculture, turf and harvesting unit, added that “further trade progress between the U.S. and China is becoming increasingly important” in shaping the outlook for both farmers and equipment manufacturers.
China was the fourth-largest export market for U.S. farm goods last year. Even with China retaliating against U.S. tariffs with its own trade sanctions, it bought $9.3 billion in agricultural products from American farmers in 2018. But that’s down from $14 billion in 2017 and is forecast to fall further this year.
$11.8 billion poorer
U.S. farmers are sitting on a surplus of produce. In part, that’s because China transferred much of its soybean purchases to Brazil last year as the trade fight with the U.S. flared. China is the world’s biggest importer of soybeans. A recent outbreak of swine flu in China has further lowered demand for soybeans, with soybean futures skidding to a 10-year low.
Even with $11 billion in federal relief payments to U.S. farmers last year, their personal income fell by $11.8 billion in the first three months of 2019, according to the U.S. Commerce Department. The Federal Reserve Bank of Kansas City projects that trend to continue in coming months.
The Trump administration is still working out the details of a $15 billion aid package for farmer, U.S. Agriculture Secretary Sonny Perdue told reporters this week. As in 2018. it will likely involve direct payments to farmers as was done last year.
Deere isn’t alone in feeling the effects of the trade fight, with other American companies that do business in or with China expected to take hits.have declined since President Donald Trump tweeted plans earlier this month to hike tariffs on Chinese imports to 25% from 10%. have also recently warned that higher tariffs on goods imported into the U.S. will mean higher prices for consumers.