Deere Cuts Costs to Compensate For Trade War Concerns

American farmers continue to express increasing concern over the current US trade war with China.  This has turned out to be quite a big problem for the agriculture equipment company Deere & Co.  This week, Deere reported both earnings and sales missed Wall Street forecasts, lowering its outlook. 

Deere says that overall revenue is down 3 percent on the year. Furthermore, these results reflect “the high degree of uncertainty that continues to overshadow the agricultural sector,” according to Deere CEO Samuel Allen. 

Allen goes on to say, “Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases.”

While a stretch of bad weather has certainly complicated agricultural efforts this year, the trade war has been a major contribution to a dip in the company’s quarterly profits.  New tariffs over the last year have taken their toll on American farmers, reducing China’s produce imports from the US from $19.5 billion in 2017 to only $9.1 billion in 2018.  As a matter of fact, China was at one point a major buyer of soybeans from the US—the most valuable farm export in the US, to be exact—but these numbers are down to a 16-year low; Beijing has shifted more of these purchases to Brazil. 

This has forced the company to trim its full-year earnings forecast for the second time in nearly as many months.  

In addition to this, the Moline, Illinois-based firm revealed it is now assessing its manufacturing footprint, which is only part of the cost structure review.  The review will cut production by roughly 20 percent at its facilities, in the Illinois/Iowa region, towards the second half of this year. These cuts will significantly impact large tractor production.

The hope is that this cost control measure will result in an estimated savings of $25 million, this year alone.  More importantly, the success of this strategy will serve as the core focus over the next three years.  

At the end of the day, investors were quite pleased with Deere’s cost-cutting scheme. Shares were up more than 3 percent, to $148.07, early on Monday.