From the Wall Street Journal article “Trade Tension Deals Tractor Makers a Fresh Blow“:
Tariffs and trade tensions are pushing makers of U.S. farm-equipment 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 (see top chart above showing three-month stock returns for those two companies vs. the S&P 500).
That downturn is worsening this year as China buys less soybeans [contributing to the lowest prices in more than a decade, and now below the cost of production according to some estimates, see bottom chart above] 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. U.S. farmers are holding machinery longer while their incomes are depressed.
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 manufactures farm equipment in the U.S. and is the second-largest seller of machinery in the domestic market behind Deere. 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.
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.
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.”
MP: This is just one more example of how Tariff Man is causing long-term damage to the US economy by disturbing and distorting global supply chains and international trading relationships that took many years to develop in some cases. Now that China is placing large orders for soybeans from Brazil instead of the US (depressing prices here as the chart above shows) “soybean farmers in Brazil have triumphed spectacularly” from Trump’s trade war at the expense of American soybean growers. And it’s possible US soybean farmers will never get that market share back from Brazil. We can thank Tariff Man for “making Brazilian soybean farmers great again,” while US farmers and tractor makers suffer from the friendly fire of an insane trade war.