Deere Gets a Bump as Trump Farm Aid May Spur Tractor Buying

(Bloomberg) -- When the Trump administration unveiled a $12 billion aid package for farmers on Tuesday, it wasn’t just soybean growers who had cause to cheer: So too did Deere & Co., one of the largest and most successful U.S. manufacturers.

Shares of the world’s biggest tractor maker jumped as much as 4.8 percent after it emerged that the government was planning to compensate farmers who stand to lose export business amid escalating trade tensions with China.

American farmers are the biggest market for Moline, Illinois-based Deere’s green-and-yellow machinery. Prices for the company’s models can run into several hundred thousand dollars apiece. As such, its fortunes are closely tied to the financial health of its customers.

Deere Gets a Bump as Trump Farm Aid May Spur Tractor Buying

Those customers been battling low crop prices and falling incomes for years now. While there have been some positive developments in 2018 -- Deere raised its full-year sales forecast in May -- a looming trade war with American agriculture’s biggest customer, China, has clouded that outlook. China went ahead and imposed tariffs on soybeans earlier this month, pushing Chicago futures prices lower.

U.S. farm profits were already projected to reach a 12-year low before the current trade tensions, and growers have been taking out more loans to keep afloat. Debt is rising steadily while incomes are being reduced, meaning that farmers will be more leveraged in 2018, according to the Kansas City Federal Reserve.

The timing of the aid announcement raises hopes that growers could receive payments by the end of the year and bolster strained balance sheets, said Matt Splitter, a fifth-generation farmers who grows soybeans, corn, wheat and sorghum on about 4,000 acres in central Kansas.

“It’s encouraging to see the administration taking a positive stance in helping the American farmer in tough times,” he said. Farmers can’t wait for resolutions to trade disputes, as they have to pay for land, equipment and other fixed costs amid plunging crop prices, he added.

Government aid could make farmers more confident about their finances, and make them more likely to go on a buying binge at their tractor dealership, an activity they’ve been deferring for years, according to Bloomberg Intelligence.

Deere and AGCO Corp., one of its largest rivals, have warned about negative impacts from a trade war. AGCO has said that tariffs are putting additional pressure on farmers, while Deere has stressed its support for open markets and free trade.

“We strongly encourage officials to work toward a timely resolution to limit uncertainty for farmers and avoid any meaningful disruption to agricultural trade,” Deere spokesman Ken Golden said in a statement in April.

Deere & Co. posted their biggest intraday gain since May 18 before closing 3.2 percent higher at $139.84. The shares are down 11 percent this year. Deere didn’t immediately respond to a request for comment.

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