It’s going to be a skinny year on U.S. farms, which doesn’t bode well for equipment makers.
Net agriculture income is expected to slide 27 percent this year, to its lowest level since 2010, according to new data from the U.S. Department of Agriculture. Farmers are being squeezed by a simultaneous drop in both federal subsidies and prices for popular crops, such as corn and soybeans. The median farm household will pocket about $68,000 this year, according to government estimates. Not shabby, but not necessarily a windfall, considering that almost 10 percent of the assets of a U.S. farm are tied up in vehicles and equipment.
Not surprisingly Deere & Co. (DE) said this morning that sales in the current fiscal year will be an estimated 3 percent lower than in 2013, when the company posted $37.3 billion in revenue. Deere’s agriculture business will be particularly lean, with a forecasted decline of 6 percent. The company, which does about two-thirds of its business in North America, expects demand to dry up for its massive moneymakers: tractors and giant, high-powered combines that can process up to 18 rows of corn at a time.
Deere is hoping to make up some ground with bulldozers, log skidders, and other construction and forestry equipment, but those machines account for less than one in five Deere dollars. They also tend to be far less profitable.
Maybe the manufacturer should count itself lucky that farmers didn’t tighten their belts sooner. Crop prices have been sliding for months, but most agricultural incomes have stayed relatively fat, thanks to hedging contracts that locked in returns months in advance. Much of the corn that went into silos this past fall, for example, fetched prices close to those posted a year earlier.
That’s part of the reason Deere has done pretty well recently. Sales in the past quarter rose 3.1 percent, and some price hikes drove profit up almost 5 percent in the period. Farmers looking to hedge their returns for the coming harvest, however, won’t see any sweet deals.