Lower grain prices bad for ag equipment sector?

Lower grain prices bad for ag equipment sector?

FALLING grain prices and the end of what many economists now refer to as the "commodity supercycle" could portend bad things for equipment manufacturers.

One indicator suggesting that those fears could be well-placed? Exports.

According to the Association of Equipment Manufacturers, exports of U.S. agricultural equipment fell 9.5% for the first six months of 2013. Exports to South America fell 29%, sales to Europe dropped 23% and exports to Australia fell 24%.

Furthermore, for the first seven months of 2013, sales of large, four-wheel-drive tractors fell 18%, although combine sales were up 36% during the same period.

One stock to watch is Deere & Co. The iconic tractor brand reported that third-quarter net income rose 26% for the fiscal third quarter, beating Wall Street's expectations.

Even so, Deere chief executive officer Samuel Allen pointedly said the firm's success is a reflection of the "considerable strength" of the farm sector in the Western Hemisphere. While the company is expecting a third consecutive year of record results, its guidance for the rest of the year is fairly cautious, leading some market observers to wonder how soon falling farm incomes will sap "big iron's" big profits.

Volume:85 Issue:34

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