Trade Tension Deals Tractor Makers a Fresh Blow
May 27 2019 - 6:00AM
Dow Jones News
By Bob Tita and Austen Hufford
Tariffs and trade tensions are pushing U.S. farm-equipment
makers into a deeper ditch.
Deere & Co., CNH Industrial NV and other makers of the
tractors and combines used to plant and harvest American crops are
already facing weak demand from farmers as a result of a five-year
slump in the agricultural economy.
That downturn is worsening this year as China buys less soybeans
and other crops from the U.S., and manufacturers pay more for the
steel and other materials they import to build their machines.
"People just aren't buying. They're afraid," said David Savoie,
vice president for Sunshine Quality Solutions, a Deere dealer in
Louisiana where sales of big machinery have dropped significantly
since last year.
During the first three months of 2019, U.S. agricultural exports
to China were 40% below the same period last year, according to
Agriculture Department data. And that comes on top of a steep
decline in 2018, when the U.S. sold $9.2 billion worth of farm
goods to China, versus $19.5 billion in 2017, the department
estimates.
Deere said May 17 that it will cut production in the second half
of its fiscal year by 20% compared with the same time last year.
The Moline, Ill.-based company expects to record up to $75 million
in higher costs this year for steel and metal components driven up
by U.S. tariffs.
CNH, the U.K.-based manufacturer of Case IH and New Holland
equipment, expects to pay tariff-related costs of between $50
million and $100 million this year. CNH and Duluth, Ga.-based Agco
Corp., whose machinery brands include Massey Ferguson and
Challenger, reported lower farm equipment sales in the first
quarter from a year earlier.
U.S. farmers are holding machinery longer while their incomes
are depressed. Sales of large, high-horsepower tractors in the U.S.
and Canada are down 50% from 2013, even though sales grew last
year, according to trade group data.
Farmers interested in buying new machinery are finding it
tougher to trade in their older models because dealers are already
stuck with inventories of used equipment that can't sell.
"That used market is fairly saturated now," said Barry
Alexander, manager of 13,000-acre Cundiff Farms in western
Kentucky.
A long-running trend toward consolidation in the Farm Belt also
leaves fewer customers for equipment dealers. And the larger
tractors bought in recent years have given farmers more horsepower
and greater efficiency, allowing them to buy fewer machines and
replace them less often.
Deere's production cut is rippling through its supply chain
where profits are already shrinking from weather-related delays in
planting this year's crop and lower grain exports.
"Farmers are the collateral damage of that ongoing China-U.S.
trade dispute," George Reitz, the chief executive of Quincy,
Ill.-based off-road tire maker Titan International Inc., told
analysts earlier this month.
Titan on May 6 reported a 35% reduction in first-quarter profit
from its farm business.
At the same time, U.S. tariffs on metal and components from
China are hurting other farm-focused manufacturers.
Pella, Iowa-based Vermeer Corp., which makes hay balers, said it
expects to pay $4 million in direct tariff costs this year. Its
steel costs rose 50% last year, but prices have been declining in
recent months as steel inventories rise. Lindsay Corp., based in
Omaha, Neb., said profit from its irrigation business fell by 31%,
as sales dropped 16% in the three months through February.
The Trump administration has said it would spend $16 billion to
offset the impact on American agriculture from the trade dispute
between the U.S. and China. Yet even if the dispute is resolved,
some manufacturing executives say U.S. farmers might still be worse
off than before if China continues to buy some grain from farmers
in South America, which has increased output to accommodate the
demand from China.
"Once those supply chains move, it's not guaranteed they'll come
back," CNH Chief Executive Hubertus Mühlhäuser said. "Brazil will
keep its customers. They'll put more acres under the plow."
Write to Bob Tita at robert.tita@wsj.com and Austen Hufford at
austen.hufford@wsj.com
(END) Dow Jones Newswires
May 27, 2019 05:45 ET (09:45 GMT)
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