When China announced this week that it had stopped buying U.S. agricultural products and might impose additional tariffs on farm shipments from America, Dave Schmidt braced for another blow to his business.
The Salem, Wisconsin-based dealer of Deere & Co’s (DE.N) tractors, planters and combines is grappling with declining sales and higher levels of inventory as farmers have put off equipment purchases in the wake of rain-delayed planting in the Midwest and the yearlong Sino-U.S. trade standoff.
Schmidt says sales at his dealership, in general, declined by as much as 15% in the first half of the year, led by a fall in the demand for large equipment. In a sign of things to come, early orders for planting equipment for next season’s soybean and corn crops are down up to 25%.
He is not alone. Half a dozen dealers of Deere’s agriculture equipment across the Midwest shared similar accounts in interviews with Reuters. One of those dealers, in Geneseo, Illinois, said sales at his dealership were down 50% so far this year from the same period last year.
This is a worrying sign for Deere, which gets nearly 60% of its sales from the United States and Canada. The Moline, Illinois-based company is expected to report lower sales at its agriculture & turf segment when it reports its third-quarter earnings on Aug. 16.
The segment, which accounts for the bulk of the company’s sales, is expected to report quarterly sales of $6.24 billion, compared with $6.29 billion a year ago, according to Refinitiv IBES’ average analyst estimate.
Overall, Deere is expected to report quarterly earnings of $2.88 per share, compared with $2.78 a share in the corresponding period last year. Revenue for the July quarter is forecast to come in at $9.40 billion, up from $9.29 billion last year.
In May, Deere slashed its full-year profit and sales outlook, blaming the U.S. trade war with China for weak demand for its farm machines.
The company’s shares, however, have gained a little over 14% since its last earnings report on hopes that a rally in corn prices would encourage farmers to buy new equipment.
But dealers are not so sanguine.
“We are not expecting demand for planting equipment to come back up this year,” Schmidt said. “We might see more repair and upgrading of the existing equipment.”
Deere has downgraded the estimates for U.S. principal crop cash receipts this year, an important indicator for equipment demand, citing China’s retaliatory tariffs on American imports, which have slashed exports earnings of American farmers.
China imported $9.1 billion of U.S. farm produce in 2018, down from $19.5 billion in 2017, according to the American Farm Bureau, the largest farm industry group in the country.
U.S. shipments to China of soybeans, the country’s most valuable farm export, sank to a 16-year low last year as the Asian nation mostly shifted purchases to Brazil, leaving American farmers with surplus stocks. U.S. soy prices are down 18% since March 2018, when President Donald Trump launched a tariff war on China and other countries.