Trade tensions are hitting Deere & Company (DE) right now – the stock is down 7.83% year-to-date. The company cut its full-year forecast, citing uncertainty in its agricultural sector.
American farmers have been struggling with low crop prices and the loss of Chinese markets due to President Trump’s trade struggle with Beijing and are therefore likely to purchase $464 million less agricultural machinery, mainly tractors and harvesters, from Deere & Co. this year than the manufacturer predicted.
While a variety of different experts have cautioned that the tariffs, which include 25% levies on $250 billion of Chinese goods so far, risk impeding U.S. growth, the White House has maintained its strategy. Farmers, in the interim are asserting that the current agricultural economy is the most devastating since the 1980s, when farm foreclosures skyrocketed to record highs due to soaring interest rates, dwindling crop prices, and a ban on crop sales to the Soviet Union ordered by former President Jimmy Carter.
“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.”
According to experts, this drop in Deere could have a significant affect on agribusiness ETFs like the Vaneck Vectors/Agribusiness ETF (MOO).
Mike Santoli on CNBC explains, “The MOO, which is the big agribusiness ETF. Deere is the second largest holding in this ETF. It also has lots of fertilizer companies. The largest holding is actually Zoetis, which is the animal health business, formerly I think part of Pzizer. You see basically down on a one year basis, this agribusiness ETF is almost 2% underperforming this year. It’s up about 9% versus the overall market around 13%. Obviously crop prices have been under pressure. Farm incomes matter a lot for Deere. In general not a a great backdrop. This ETF is a diversified mix, but shows you it has not been a very strong part of the market. And Deere is highlighting that today.”
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