Deere & Co. is scaling back production at some of its major North American plants, with heightened trade tensions and harsh weather hurting farmers' incomes and lowering equipment demand.
Moline-based Deere on Friday cut its full-year profit forecast. The agriculture-equipment manufacturer reported second-quarter earnings of $1.13 billion, or $3.52 per share. That's lower than the $1.21 billion, or $3.67 per share, reported during the same quarter last year.
The revised forecast is another indicator that farmers, and those in the Midwest in particular, are suffering the brunt of the Trump administration's trade battles. On Friday, the president sought to ease fears over the escalating trade confrontations by lifting tariffs on industrial metals with Mexico and Canada, and he has pledged another aid package for farmers hurt by tariffs.
Deere said it lowered its forecasts because farmers aren't buying as much equipment. Farmers are worried about plummeting crop prices, international trade disputes and extreme weather events that have delayed planting, including here in Iowa.
Deere's earnings were lower than Wall Street expectations, causing shares to drop more than 7 percent in afternoon trading.
"Ongoing concerns about export-market access, near-term demand for commodities such as soybeans and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases," Chairman and CEO Samuel Allen said in the report.
On a Friday morning call with analysts, Josh Jepsen, director of investor relations, said in response to market dynamics Deere is reducing production in its agriculture business to levels below retail sales. Production will be lower at some of its large North American plants for the remainder of the year.
Ongoing concerns about export-market access, near-term demand for commodities such as soybeans and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases," Chairman and CEO Samuel Allen said in the report.
On a Friday morning call with analysts, Josh Jepsen, director of investor relations, said in response to market dynamics Deere is reducing production in its agriculture business to levels below retail sales. Production will be lower at some of its large North American plants for the remainder of the year.
He said the changes are mostly affecting the production of large agriculture equipment, with its major plants shipping around 20% less than the previous year.
Locally, Deere manufactures large agriculture equipment, such as combines and tractors, at its factories in East Moline and Waterloo.
Deere spokesman Ken Golden said the company is not specifying where production cuts are being made, only that it plans to under-produce market demand in the second half of the year.
"Production changes can be accomplished without changing the size of the workforce," Golden said in an email. "We have not announced any change in workforce."
Deere lowered its earnings outlook to $3.3 billion for the year, down from the previous forecast of around $3.6 billion. It also lowered its expectation for revenue to increase 7%, now anticipating 5% growth.
Jepsen said in reporting the lower forecast and decision to cut production, Deere is not assuming a trade agreement will be reached in the second half of the year.
"As a result, we're taking down production in an effort to calibrate our field inventory where we want to end the year for 2020," he said. "The 20% ... that's just as an example of our large ag factories, that's not broadly across the division, but on a production-unit basis. That's the magnitude we're seeing in a few of our larger facilities."
The cuts come as the U.S. and China impose escalating tariffs on billions of dollars in imports, largely taking a toll on soybean farmers, as around 60% of U.S. soybeans are shipped to China.
Soybean prices dropped to a 10-year low this week.
Deere isn't the only major agriculture manufacturer hurt by the trade war. Stocks of Caterpillar also are trading lower this year.
Jepsen said scaling back production is the first step in responding to the uncertain market.
In the second quarter, worldwide revenue rose 6% to $11.34 billion, from $10.72 billion the same period last year.
Deere saw improved sales in the construction and forestry division in the second quarter. Sales rose 11% to $2.99 billion, driven by higher shipment volumes and prices.
Despite the lower forecast for the year, Ryan Campbell, chief financial officer, said the company expects a "full, gradual recovery" as challenges — including trade tensions, harsh weather conditions and lower equipment demand — are abated.
"Although we did reduce our net income forecast for the year, the $3.3 billion we now forecast for the year would still be the second largest in our history. Our second quarter sales and revenues represent the largest second quarter in company history," Golden said in an email. "We believe more agriculture equipment customers are taking a pause in purchasing due to the short term uncertainties. We continue to believe that the long-term factors remain intact to drive higher sales."
Sarah Ritter, Quad-City Times, May 18, 2019. The Associated Press contributed to this report.
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May 19, 2019.
Voices4America Post Script. Wondering how #TrumpTariffs affect the Farmers? Here is how the dominos fall.When you go bankrupt, you don't buy equipment. The consumer pays more because there is less produce, less meat. #BiggestLoserTrump #BiggestLoserAmerica
Here are some farm bankruptcy figures from Vox, May 17, 2019. “A total of 84 farms in the upper Midwest filed for bankruptcy between July 2017 and June 2018, according to the Federal Reserve of Minneapolis. That's more than double the number of Chapter 12 filings during the same period in 2013 and 2014 in Wisconsin, Minnesota, North Dakota, South Dakota, and Montana.
Farms that produce corn, soybeans, milk, and beef were already suffering due to low global demand and low prices, according to economists, but Trump's trade war is ruining them. The problem got so bad that the Trump administration launched a $12 billion aid package for US farmers coping with retaliatory tariffs that foreign countries have imposed on their products." (Vox, https://www.vox.com/policy-and-politics/2019/5/17/...)
Farmers have said they don't want another check from the government- that, of course, means you, the taxpayer- and Trump has told them to make sacrifices. Really.
I became aware of this downward spiral because Representative Abby Finkenauer, first year Congresswoman from Iowa CD1, tweeted this article and described the situation.
