Heavy flooding in the last several months across the Midwest, a deepening trade war with China, depressed commodity prices, skyrocketing fuel costs, declining land values, and massive debt loads have squeezed farmersso much that Deere slashed production last week to deal with the downturn.
Deere executives on an earnings call last week warned that shipments of its tractors would decline by 20% YoY in 2H19.
"Until there's some kind of stability on crop prices or a resolution on the trade front, farmers will continue to repair equipment as best they can or go to used markets," said Chris Ciolino, an analyst at Bloomberg Intelligence. "When we do get stability, the replacement cycle will kick back into gear."
Bruce Clark, a senior vice president at Moody's Investors Service, said the farm crisis had shifted Deere's credit rating to negative.
"Deere's plans to reduce production in its core Ag business to levels below retail sales, which will strain sales but also control the field inventory, are characteristic of the company's approach to contend with operating stress and cyclical downturns," Clark said.