US tractor maker Deere & Co has cut its full-year earnings forecast for the second time in four months as the US-China trade war continues to hit American farmers.
In a move that pushed its shares lower in pre-market trading, Deere reduced its net income outlook to $3.2bn from $3.3bn previously, saying that the “continued uncertainty” in the agricultural sector had weighed on its results.
Deere’s net sales for the three months to July 28 fell 3.8 per cent from the same quarter last year to $8.97bn. Net income declined to $899m from $910m.
The US farmers who buy Deere’s machinery face losing their fourth-largest customer after Beijing told its state-owned enterprises to halt their purchases of US agricultural goods earlier this month.
Farm products, especially the soyabeans Chinese companies import from the US to feed its growing demand for the pigs and poultry, have become a central battleground in Donald Trump and Xi Jinping’s trade war. This is not least because many US farming states are strong support bases for Mr Trump.
Deere’s third-quarter results, published on Friday, “reflected the high degree of uncertainty that continues to overshadow the agricultural sector”, chairman and chief executive Samuel Allen said.
He blamed farmers’ uncertainty on “concerns about export-market access, near-term demand for commodities such as soyabeans and overall crop conditions [that] have caused many farmers to postpone major equipment purchases”.
The last time Deere sounded the earnings alert, in mid-May, the group also raised concerns that the stronger US dollar would lower the reported revenues from its exports.
In a research note released ahead of Deere’s quarterly results, analysts at JPMorgan said “the fundamentals for US farmers have deteriorated rapidly”, citing the strong dollar, a slow start to the planting season and growing supplies from South America, as well as the US-China trade war.
“As a result, we view the risks for [agricultural] equipment suppliers as skewed to the downside, especially into [full-year] 2020 and perhaps beyond.”
The trade war has provided a boon for farmers outside the US, including in Brazil, Mexico, Australia and Canada. As China cut purchases of US soyabeans last year, for example, Brazil’s exports surged 30 per cent.
Tensions between the US and China grew stronger this week, with Beijing vowing to take “necessary countermeasures” against Mr Trump’s next round of tariffs on Chinese goods that it deemed “a serious violation” of previous agreements the US president had made with Mr Xi.
Agriculture has not been the only US industry to have suffered either, with the spat weighing on corporate spending across America and affecting industries from technology to pharmaceuticals. This month, Goldman Sachs cut its forecast for fourth-quarter economic growth in the US to 1.8 per cent, quarter-on-quarter, from a previously expected 2 per cent.