It’s going to be a slow year for United States farms, which could potentially mean a slow year for farm equipment manufacturers.
Net agriculture income was projected to slip twenty-seven percent this year–the lowest since 2010. Drops in federal subsidies and prices for soybeans and corn are squeezing the farmers for all they’re worth. According to government estimates, the average farm household will bring in $68,000 this year—but almost ten percent of the total income goes towards equipment and vehicles.
And unfortunately, Deere & Co. (DE)–one of the largest manufacturers of agriculture machinery in the world–said that sales in the “current fiscal year” would be estimated to be three percent lower than in 2013. Deere’s agriculture business will be especially lean, with an estimated drop of six percent.
Doing about two-thirds of their business in America, the company is expecting demands for their highest-grossing products to slow down; products such as tractors and giant high-power combines (which can process up to eighteen rows of corn at a time) are expected to see a decrease in demand.
The company is also hoping to make some moves upward with products like bulldozers, log skidders, and other forestry and construction equipment, but unfortunately, these products are far less profitable than agricultural equipment.
With crop prices sliding for months, companies like DE should be counting their lucky stars that the farmers haven’t tightened their belts and stopped buying equipment sooner. Deere has done so well recently because of hedging contracts, which lock in returns months in advance. In this case, crops from this past fall came closer to the prices posted earlier in the year.
Deere’s shares also fell three and a half percent this last week, disappointing many investors. And it’s predicted to fall throughout the year due to concerns about the global economy and, of course, equipment sales.
In discussing this issue last year, Deere’s chief, Samuel R. Allen, said, “The near-term outlook is being tempered by uncertainties over fiscal, economic and trade issues that are undermining business confidence and restraining growth.”
In his statement, Allen did calm the nerves of everyone around saying, “Even in the face of moderating demand for agricultural equipment, Deere is well-positioned to deliver solid performance.”
And with that, we’d like to remind everyone that news like this isn’t always a terrible thing. It’s good to be realistic about the current outlook, but even a slowdown like this for a company like Deere isn’t something to lose too much sleep over. The American manufacturing industry as a whole is still in a great position for continued growth.