Trade war, heavy rains weigh on Deere & Co.

Deere & Co. cut its profit and sales expectations for the year as a trade war between the U. S. and China escalates and farmers try to recover from a planting season besieged by heavy rains.

Prices of soybeans, targeted by Chinese tariffs last year, fell to a 10-year low this week as the countries traded jabs.

“Ongoing concerns about export- market access, nearterm demand for commodities such as soybeans, and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases,” Deere chairman and CEO Samuel Allen said in a prepared statement Friday.

The warning from Deere pulled the entire S&P industrial sector down on fears that the nation’s largest manufacturers will see similar damage.

Deere now expects to earn about US$3.3 billion in 2019, down from its forecast three months ago for profits of about US$3.6 billion. The company is less optimistic about revenue as well, lowering its forecast of a seven- per- cent increase to just five per cent.

Company shares slumped 7.65 per cent in New York trading to a new low for the year.

China has targeted U. S. farmers, particularly soybean farmers, in retaliation for tariffs put in place by the Trump administration. The effects of China’s actions have not taken full force in the U.S. farm belt.

Roughly 60 per cent of U. S. soybeans are shipped to China. But China doesn’t begin most of those purchases until the fall. It typically buys soybeans from South American nations during spring and early summer.

Yet the fight being waged across the Pacific is already hitting U.S. farms.

Despite the US$ 11- billion in relief payments that were doled out last year by the U. S. federal government, the personal income of farmers declined by US$ 11.8 billion through the first three months of 2019, according to the U. S. Commerce Department. A similar pace of decline is expected in the coming months, according to the Federal Reserve Bank of Kansas City.

And that is hurting Deere. Deere earned US$1.13 billion, or US$ 3.52 per share, for the period ended April 28, which is six cents less than industry analysts had expected, according to a survey by Zacks Investment Research. And it’s less than the US$ 1.21 billion the Moline, Ill., company earned during the same period last year.

Revenue rose to US$11.34 billion from US$ 10.72 billion. Adjusted revenue of US$ 10.27 billion topped forecasts.

Construction and forestry sales climbed 11 per cent to US$ 2.99 billion on higher shipment volumes and increased prices. It also benefited from the inclusion of Wirtgen’s sales for two additional months. Equipment operations sales increased five per cent to US$10.27 billion, while agriculture and turf sales climbed three per cent to US$7.28 billion.