Farm equipment suppliers such as Deere & Co. have been shedding jobs and other agribusiness giants are reporting weaker business prospects in North America, a potential harbinger of continued softness in farm income as producers head out to harvest crops this fall.
Prices for corn, soybeans and other commodities have been falling sharply amid the prospects for bumper crops and swelling stocks this fall, forcing a belt-tightening among farmers that has showed up in corporate earnings reports this month.
With farmers pulling back on spending, John Deere reported that sales from its Production and Precision Ag division fell 25% in the latest quarter from the same period in 2023. The division’s operating profit fell 35%. Deere has laid off more than 2,000 workers in Iowa and Illinois this year.
Deere competitor AGCO Corp., which is laying off about 6% of its workforce, reported its sales fell 15% in the latest quarter from the same period in 2023.
AGCO’s net sales in North America were down 18%. The company estimates retail tractor sales for the full year will drop 10-15% from 2023 in North America and 25-30% in South America. Company officials say AGCO has eight months of inventory on hand in North America and is working to whittle that down with production cuts.
“There's always a big correction year where the industry slows rapidly as farmers reduce their spend on new equipment. We've known 2024 was going to be that big transitional year,” AGCO President and CEO Eric Hansotia told analysts.
“After the transitional year, industry demand tends to float around trough levels for a period of time before ramping back up. The duration and the severity of the decline are influenced by many things, like commodity prices. weather, and stocks-to-use ratios, which will make every downturn a little different.”
Deere Chairman and CEO John May told analysts his company has made “challenging decisions that impact both our factories and our offices to ensure that our cost structure aligns with current market demand.”
Deere's John MayAg equipment sales are a leading indicator of a downturn in the farm economy.
Stephen Nicolson, Rabobank's global sector strategist for grains and oilseeds, said in an interview with Agri-Pulse that "machinery is one of the first things that farmers pull back on, and then they'll start to pull back on chemistry. They'll start to pull back on fertilizer."
USDA is set to release a new forecast of farm income Sept. 5 that could show further declines in earnings, especially in row crops. The February forecast estimated net cash farm income down nearly 26% this year, nearly 14% below the 20-year average and more than 43% off the 2022 peak.
USDA’s latest estimate for the average farm-gate price of corn for this fall’s crop is $4.20 a bushel. That’s down 4.5% from USDA’s estimate in February and down from the average price of $4.65 for the 2023 crop and $6.54 for the 2022 harvest.
The projected farm-gate price for the 2024 soybean crop has been cut to $10.80 a bushel, down 3.6% from the February forecast. The average prices for soybeans in 2022 and 2023 were $14.20 and $12.50, respectively.
Earlier this month, USDA projected farmers would see record corn and soybean yields, and the department sharply raised its forecast for both soybean production and ending stocks.
Meanwhile, USDA has trimmed its forecast for 2024 wheat by 5% since February to $5.70 a bushel. Average wheat prices for the 2022 and 2023 crops were $8.83 and $6.96 respectively.
Cotton growers have seen an even steeper cut. The estimated average price for this year’s crop has been cut 17.5% to 66 cents a pound.
“If you look at what folks were making a couple years ago to today, I mean, this is among the sharpest declines in the farm economy that we've ever seen,” John Newton, chief economist for the Senate Agriculture Committee Republican staff, told Agri-Pulse.
Senate Ag Committee's John NewtonHe said there is a lot of uncertainty in farm country, citing the amount of grain that farmers are keeping in storage, hoping that prices improve. “That’s risky given the cost of credit, the cost of storage,” he said.
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Newton said the price declines underscore the need for a new farm bill. Prices for major crops, other than possibly cotton, remain above the levels that would trigger payments under the Price Loss Coverage. Some farmers could see payments under the Agriculture Risk Coverage, but not if yields are strong, he noted. ARC triggers payments to farmers when average revenue in their county falls below a five-year average. Yields as well as market prices factor into whether growers get ARC payments.
Next year is likely to be challenging for farmers as well, he said. “We know based on USDA cost of production forecast for 2025, their expected input costs remain elevated, and yet commodity prices have fallen,” he said.
The farm economy is far from bleak for every sector. Beef and dairy prices, for example, remain relatively strong on tight production in both sectors. Livestock producers also benefit from declining prices for feed.
Because of the tight market and strong prices for cattle, meatpacking giant Tyson Foods reported an operating loss of $69 million in the latest quarter on beef, compared to a $66 million profit during the same period in 2023. The company blames the ongoing downturn in cattle production. A Tyson official told analysts the company hasn’t seen any notable sign that producers are retaining cattle and rebuilding herds.
Tyson also said it had an operating loss of $62 million on pork, compared to its $74 million loss in 2023. The company’s big bright spot is its chicken segment, which accounted for a $244 million profit in the latest quarter.
Another major processor, JBS, similarly reported that earnings before interest, taxes, depreciation and amortization (EBIDTA) on North American beef were off 81% in the latest quarter from the comparable period in 2023.
Looking ahead, executives of fertilizer companies such as Mosaic and Nutrien say they expect demand for their products to remain strong despite the declines in prices for commodities such as corn.
“While no doubt corn and soybean prices have softened, other grain and oilseeds and specialty crops are favorable, especially for crops like palm oil and rice,” said Bruce Bodine, CEO of the Mosaic Co. Mosaic reported a $162 million net loss in the latest quarter on 17% lower sales from a year earlier.
Nutrien's earnings report said that “demand for crop inputs in North America is expected to remain strong in the third quarter of 2024 as growers aim to maintain optimal plant health and yield potential. We anticipate that good affordability for potash and nitrogen will support fall application rates in 2024.”
Lydia Johnson contributed to this report.
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