Farm machinery makers see big dip in demand

Shares of farm equipment firm Deere & Co are down 8% on weak third-quarter results as analysts say other agricultural firms are also hurt in an industry downturn.
Farm machinery makers see big dip in demand

The maker of John Deere-branded agriculture, construction and forestry products blamed the weak farm economy and softer demand for construction equipment.

“There is a huge concern among the equity community that any agriculture, and also any commodity-based company, is now seen in a bearish light,” said Rich Nelson, an analyst at Allendale.

Shares of heavy machinery makers CNH Industrial and Agco fell 4.5% and 5.5%.

Shares of Caterpillar and Komatsu Ltd, which have little to no exposure to farming but are heavy in construction and mining, both fell nearly 2%.

“We don’t see any reason for farm income to improve and we don’t think farmers are going to increase their demand for equipment any time soon,” Jim Corridore, an analyst at S&P Capital IQ, said.

US crop prices have fallen sharply since historical 2012 highs. In Iowa, the largest corn producer, average corn prices paid to farmers in 2012 were $6.67 (€5.83) per bushel, but had declined to $3.74 per bushel as of April 2015, according to the Iowa Office of National Agricultural Statistics Services.

Last Friday, cash prices offered for corn were $3.30 and $4.05 at elevators and processors around the US Midwest.

“We’re coming off of an artificially high (crop) price situation, so yes these are sharply lower numbers but I would caution against suggesting that this is a brand new issue,” said Allendale’s Nelson.

“Farmers are maintaining current equipment. Many bought equipment in the past two years without a second thought. Now they are turning to more normalised patterns of buying,” Rich Nelson said.

Darin Anderson farms in south-eastern North Dakota and has not bought a new piece of farm equipment since winter 2012.

Anderson bought a planter, prices can range upwards of $200,000 (€175,000) to $350,000 (€305,000), but he has no plans to buy more equipment soon.

“Crop prices are far below breakeven. We’ll average 80 bushels per acre, which is an awesome crop, but if we sold it all right now? We’d lose money,” Anderson said.

The average 2015-16 projected wheat harvest is 44 bushels per acre, according to the US Department of Agriculture.

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