Deere & Co., the world’s largest maker of agricultural equipment, is concerned that rising trade tensions between the U.S. and other countries could affect sales of its signature green-and-yellow tractors and combines.
While U.S. tariffs on imports of steel and aluminum will have a financial impact on the company, Deere is “much more worried” about possible trade retaliation targeting American agricultural products, CEO Sam Allen said.
“If China no longer buys U.S. soybeans or Mexico no longer buys U.S. corn, that would be really bad for our customers and that would be much more impactful on us,” he said Tuesday in an interview at a company factory in Indaiatuba in Sao Paulo state, Brazil.
Allen’s comments came hours before the Wall Street Journal reported that China is considering tit-for-tat tariffs aimed at U.S. products including agricultural exports. About one-third of U.S. agriculture is exported, Allen said. That trade flow could be in jeopardy if President Donald Trump follows through on repeated threats to quit the North American Free Trade Agreement, or if China imposes tariffs or quotas.
Any curbs on U.S. export earnings risk stifling a rebound in farmers’ incomes just as signs emerge of a recovery in agricultural commodity prices.
“After four years of record harvests, for the first time we’re seeing a potential reduction” in supply as a result of Argentina’s drought,” Allen said. “We can already see global grain reserves going down and they don’t have to go down much further for commodity prices to go up.”
Deere dropped 0.3 percent to $159.50 at 7:49 a.m. in pre-market trading in New York.
As for the metals used to manufacture Deere’s machines, the import tariff is concerning because American mills will be able to increase prices significantly, Allen said, adding that steel could rise by roughly 30 percent in a short period of time. Still, it won’t be possible to assess the cost impact until the U.S. government provides more details on the tax rules to see if countries such as Canada and Mexico are affected, he said.
Deere and Caterpillar Inc. are among U.S. companies most at risk from escalating trade tension since exports make up about 30 percent and 20 percent of their equipment sales respectively, Morgan Stanley analyst Courtney Yakavonis said earlier this month.
Without a trade war, agricultural-equipment demand may continue to rise as farmers replace old machines, he said. In the U.S., machinery sales should remain at current levels for the next four or five years in the absence of better price conditions, he added.
Latin America machinery sales are still seen as somewhere between being flat and gaining as much as 5 percent this year, he also said. Falling Argentine demand will offset potential gains in Brazil, he said.
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