Demand for new farm equipment should be in full swing. American growers have outdated fleets of tractors, and they need to be replaced. Yet there’s a reluctance to buy, and Deere & Co. has even started cutting production to deal with it.
The machinery giant’s order books show demand that’s trailing last year, executives told analysts on an earnings call. In the second half, it sees some of its larger facilities shipping as much as 20% less than a year ago. Just last year demand was so strong that the company was ramping up production so fast it experienced bottlenecks in its supply chain.
“Until there’s some kind of stability on crop prices or a resolution on the trade front, farmers will continue to repair equipment as best they can or go to used markets,” said Chris Ciolino, an analyst at Bloomberg Intelligence. “When we do get stability, the replacement cycle will kick back into gear.”
U.S.-China trade tensions are flaring and African swine fever in China is decimating hog herds. That’s shaking up the market share and production of key commodities like soybeans, and American farmers in many cases are bearing the brunt of the changes. In addition, wet weather in the U.S. has kept farmers from planting, exacerbating worries.
The situation is “credit negative for Deere,” according to Bruce Clark, a senior vice president at Moody’s Investors Service.