John Deere Slashes Production Amid A 1980s Style Farm Crisis Collapse In Midwest

[Achilles]

John Deere Slashes Production Amid A 1980s Style Farm Crisis Collapse In Midwest

by Tyler Durden
Sun, 05/19/2019 - 21:10





With the entire US agriculture sector facing a 1980s style farm crisis downturn and record debt levels, demand for new tractors is set to collapse as farmers hang on to old Deere & Co. equipment, reported Bloomberg.

Heavy flooding in the last several months across the Midwest, a deepening trade war with China, depressed commodity prices, skyrocketing fuel costs, declining land values, and massive debt loads have squeezed farmers so much that Deere slashed production last week to deal with the downturn.

Deere executives on an earnings call last week warned that shipments of its tractors would decline by 20% YoY in 2H19.

"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."

Bruce Clark, a senior vice president at Moody's Investors Service, said the farm crisis had shifted Deere's credit rating to negative.

"Deere's plans to reduce production in its core Ag business to levels below retail sales, which will strain sales but also control the field inventory, are characteristic of the company's approach to contend with operating stress and cyclical downturns," Clark said.

Executives told investors fundamentals will deteriorate in 2H19.
There could be widespread pain across the Midwest in 2H19. Over $76 billion of corn and soybeans are in storage, according to the Farm Bureau, as China slashes imports of grains from North America amid a deepening trade war.

Josh Jepsen, director of investor relations for Deere, said it's too early "to say we've seen permanent shifts in production or market share globally" due to the trade disputes.
Matt Arnold, an analyst at Edward Jones & Co., said, farmers, replace tractors in cycles. Following three years of declines, Deere's revenue growth turned positive in 2017. Arnold indicated the industry still has room to grow, which could last into the early 2020s.

"Investors are overly focused on the near-term downturn in the agriculture economy, while not appropriately pricing in Deere's long-term growth opportunities," Arnold said in a note Friday.

If trade disputes continue to escalate and no resolution is seen by 2H19, the replacement cycle for farmers could be several years out, likely to send Deere's equity to the $100-80 range.

https://www.zerohedge.com/news/2019-...llapse-midwest

[Summerthyme]

One thing no one mentions when showing these numbers is that China has lost (they either died or were slaughtered) OVER HALF their hogs to swine flu. There were an estimated 360 million hogs in China... they've lost around 200 million yo the disease (and the official response)

Thats a LOT of corn snd soy they no longer need to feed...

Summerthyme

[Hoppalong]

Once again a Slightly left leaning source that is just presenting One Sided View of things. Geesah They need to present ALL the facts in a story that is leading to what their headlines say, not just a doom and gloom sided view and those that just love to have those kind of stories on a daily basis for their empty babies to recover from if no doom and gloom story is told. LOL

[HouseWolf]

Anyone priced a new Deere in the 100 hp class lately?
If you make hay, run a discbine, roll round bales, that’s about what you need.

New they’re just under 100k. As in One hundred thousand.

You know what your ROI on that machine will be if you’re a small beef producer?
About 40 years.

The prices have gone up and up, the technology in these things rivals the space shuttle, and even the dealers are saying they don’t know how anyone can afford a new machine.

Fact is, they can’t.

[Samuel Adams]

Wholly agreed, HW.

They haven’t improved much on the function and durability of the 4020.

[Buster]

Wholly agreed, HW.

They haven’t improved much on the function and durability of the 4020.

My FIL had a 4020--IMO it was a very good tractor and in 1973 dollars was about 10-12K IIRC
the technology is being incorporated into our lives faster than most of us can afford it
some of it is because of fedgov mandates but much of it is manufacturers trying to out do each other
I often wonder if there is a large enough market for a basic whatever just something that gets the job done in a comfortable manner without all of the lastest tech

[merovingian]

Fed tier 4 emissions requirements for farm diesels came through in 2014 as I recall. That mandated essentially no emissions, which in the case of farm diesel engines meant particulate filters, diesel exhaust fluid injection, and plenty of digital engine management computers to manage the systems. That equals lots of money, and no gain for the farmer.
Yeah, its the government "fixing" things again.