Farm-Equipment Sales Plunge Most Since 2016 in Trade-War Fallout

(Bloomberg) -- Purchases of farm equipment plunged by an annualized $900 million in the first quarter, the sharpest drop in three years, as U.S. producers struggle with falling commodity prices and collateral damage from President Donald Trump’s trade wars.

The Commerce Department cited the drop in agricultural machinery purchases as a contributor to the paltry 0.2 percent quarterly rise in overall business spending on equipment, also the weakest performance since 2016. The softness in the category came despite promises by Trump and Republican leaders that tax breaks for equipment purchases in the party’s signature tax law would boost investment by farmers and manufacturers.

The reluctance of farmers and other business owners to invest in equipment flashed a cautionary signal for the U.S. economy and for machinery manufacturers such as Deere & Co. The data was included in the fine print of a Commerce Department report Friday on the economy’s performance that overall surprised forecasters with stronger-than-expected results, showing U.S. growth accelerated to an annualized 3.2 percent rate in the first quarter.

The fresh signs of financial pressure on farmers, local tractor dealers and other suppliers that support them underscore the rising political danger the trade war presents to Trump as a negotiating team heads to Beijing next week for another round of trade talks. Lopsided support from rural areas was a key driver for Trump’s narrow 2016 victory over Democrat Hillary Clinton.

Kip Eideberg, vice president of government affairs for the Association of Equipment Manufacturers, which represents more than 1,000 U.S. manufacturers of farm, construction and mining machinery, said some member companies have already dismissed workers and deferred capital investment plans because of the trade war.

“The retaliatory tariffs that China has levied on almost all U.S. agricultural exports has seriously hurt farmers, further depressed already stressed commodity prices, and has had a chilling effect on equipment manufacturers,” Eideberg said in an emailed statement.

The economic squeeze on U.S. producers is tightening after six years of decline in U.S. farm profits, which fell last year to $69.4 billion, half of the $136.1 billion in 2013. Prices of key commodities such as corn and soybeans have declined, while the Trump administration’s immigration crackdown has cut into migrant labor. Midwestern states were hit with historic floods this spring.

The trade war struck another blow as key importers of U.S. agricultural products such as China, Canada and Mexico have retaliated against Trump’s tariffs with duties targeting American farmers.

Brent Norwood, manager of investor relations for Deere, pointed to the trade war in a Feb. 15 call to discuss the Moline, Illinois-based agricultural machinery manufacturer’s earnings.

“U.S. farmer sentiment remains fluid and continues to erode the longer trade uncertainty persists,” Norwood said. That, he added, “has resulted in some U.S. farmers temporarily pausing equipment investment decisions.”

--With assistance from Dominic Carey.

To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Anna Edgerton, Wendy Benjaminson

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