When we read about farmers feeling the pinch in their profits due to the trade war with China, we think of farms and crops. A part of the economic story sometimes overlooked is that of companies who depend on agricultural sales, the companies that service farm communities, like Deere & Co. It was announced Friday that the company’s quarterly earnings missed Wall Street expectations. The agricultural equipment manufacturer is feeling the effects of the trade war between the U.S. and China. Since the beginning of the year, Deere stocks have declined 2% and nearly 1% in the past twelve months.
The agricultural equipment manufacturer posted revenue of $11.34 billion in the period. Its adjusted revenue was $10.27 billion, which beat Street forecasts. Four analysts surveyed by Zacks expected $10.15 billion.
Deere is considered a bellwether for the agricultural industry. Sales growth had previously been predicted at 4% this year by Deere but now, thanks to the effects of damage from U.S. duties on Chinese imports, the company’s prediction has decreased to 2% sales growth. The White House is standing firm in pressuring China’s President Xi Jinping for a deal by using tariffs while farmers are beginning to describe conditions in the agricultural economy as the worst since the 1980’s. Farm foreclosures soared as interest rates climbed and crop prices sank. During that time, with President Carter in charge, there was an embargo on crop sales to Russia in place. Also, there are weather-related problems for farmers.
“In addition to persistent uncertainty around global trade and market access, farmers are also contending with weather-related planning delays and uncertain near-term demand prospects,” Chief Financial Officer Ryan Campbell told investors on an earnings call. “The resulting decline in commodity prices has taken a toll on farmer sentiment, and correspondingly, our large agriculture sales forecast has come down.”
Farmers place much of the blame on Trump’s tariffs, some of which were doubled this month, and Beijing’s levies on goods from American states that supported the president.
“The stakes have never been higher than they are right now,” Matt Huie, who grows cotton, corn, and livestock in Beeville, Texas, told a panel of the House Agriculture Committee earlier this month. “I didn’t live through the ’80s. I did live through the ’90s, that was when I started farming. It was miserable, but I was so young I didn’t know better.”
Hardest hit is soybean sales. The Chinese use soybeans in animal feed and it is a $12 billion American export, now stopped due to the tariffs. Farm crop sales have to increase for farmers to continue to purchase equipment. China was the fourth-largest export market for U.S. agricultural goods in 2018 and American farmers’ personal income fell nearly $12 billion in the first quarter of 2019.
For Deere’s customers, “further trade progress is becoming increasingly important to the near-term sentiment,” Campbell told investors. Companywide, profit fell 6% to $1.13 billion, or $3.52 a share, in the three months through April, Deere said. That trailed the $3.62 average estimate from analysts surveyed by FactSet.
Will farmers continue to support President Trump and his pressure on China with tariffs? So far they have stood with him. President Trump is framing his message to farm communities feeling the downturn as a patriotic one.
“Our great Patriot Farmers,” the president wrote in a series of tweets on Tuesday, “will be one of the biggest beneficiaries of what is happening now.” Trump’s claim followed China’s announcement that it plans to retaliate against his latest tariffs with increased duties on $60 billion in U.S. goods, in an escalating showdown with no end in sight.
Farmers understand the long game and long-term planning, said the communications director of the Trump 2020 campaign.
“Farmers are patriotic and understand that someone had to finally call China to account,” Tim Murtaugh, communications director for Trump’s 2020 campaign, said in a statement, adding that farmers “understand the long game, because long-term planning is what they do.”
The appeal to patriotism underscores the degree to which Trump is casting his showdown with China in terms that go beyond free markets and trade deficits. The president and his advisers speak of China as a threat to American interests and values in a global competition to define the 21st century, claiming that a little sacrifice from everyone will help extinguish the threat.
Farmers are feeling rising frustration as the trade war drags on and personal income drops. They are hoping a deal is worked out soon.
Midwest farm bankruptcies are rising, agricultural producers are seeing the sharpest decline in their personal income since 2016, debt across the industry has grown to $427 billion and mental health concerns are mounting as farmers grapple with a depressed agricultural economy and a seemingly endless trade war with China.
“I think you can see very clearly that farmers are more frustrated now than they were six months ago,” Kuehl said. “We heard there’s a deal that’s imminent, then it’s not. We heard this was all going to be wrapped up quickly, then it wasn’t. A lot of farmers just want to know there’s a light at the end of the tunnel.”
Republican lawmakers are looking into a possible government bail-out to help farmers. One way to do that would be to include it in the disaster bill that has stalled in Congress. Meanwhile, President Trump is forecasting the possibility of a deal in the near future while also managing expectations. Maybe there will be a deal soon, maybe not.
I’ll end with noting a goodwill gesture from President Trump to farmers. He is donating his first quarter paycheck to the Department of Agriculture. During his time in office, Trump has donated his paychecks to eight other government entities, fulfilling a campaign promise to give away his presidential salary. This is the first one for the Department of Agriculture.
In a statement, Agriculture Secretary Sonny Perdue said the donation — along with Trump’s regulatory reform and trade deal negotiation efforts — “further illustrates President Trump’s affection for farmers and ranchers.”
“The president recognizes that American farmers contribute an incredible amount to our economy but have been treated poorly for many years, which is why he is fighting for fair and reciprocal trade deals,” the White House official added, specifically pointing to the U.S.-Mexico Canada trade deal pending ratification by all three partner countries.