Deere owes Trumps trade war for lower earnings, plans to reduce production 20% on large plants | Economy

The revised forecast is another indication that farmers, and those in the Midwest especially, are suffering from the use of Trump administration's trade fights. On Friday, the president attempted to ease the fear of the escalating trade disputes by lifting industrial metal tariffs with Mexico and Canada, and he promised another farmers' aid package that was harmed by tariffs.

Deere said it lowered forecasts because the farmers did not buy so much equipment. Farmers are concerned about shortening crop prices, international trade conflicts and extreme weather conditions that have delayed planting, including here in Iowa.

Deere's earnings were lower than Wall Street's expectations, causing stocks to drop more than 7 percent in afternoon trading.

"Ongoing concerns about export market access, near-time demand for goods such as soybeans and a delayed planting season in much of North America, make farmers far more cautious about making big purchases," chairman and CEO Samuel Allen said in the report .

On a Friday morning conversation with analysts, Josh Jepsen, director of investor relations, said in response to market dynamics Deere reduced production in its agriculture to levels below retail. Production will be lower on some of the large North American plants for the rest of the year.

He said the changes mainly affect the production of large agricultural equipment, with the large plants delivering around 20% less than the year before.

Locally, Deere produces large agricultural equipment, such as combinations and tractors, at the factories in East Moline and Waterloo.

Deere spokesman Ken Golden said the company did not specify where production cuts are being made, only planning to sub-market the demand for the market in the second half of the year.

"Production changes can be achieved without changing the size of the workforce," Golden said in an email. "We have not announced any change in the workforce."

Deere reduced earnings prospects to $ 3.3 billion a year, down from the previous forecast of around $ 3.6 billion. It also lowered the expectation that revenues increased by 7%, now assuming 5% growth.

Jepsen said he reported the lower forecast and decided to cut production, Deere does not assume that a trade agreement is reached in the second half.

"As a result, we take down production in an effort to calibrate our field inventory where we want to end the year by 2020," he said. "The 20% … which is just an example of our big ag factories, it's not wide across the division, but on the production unit. It's the size we see in some of our larger plants."

The cuts come as the United States and China impose escalating tariffs of billions of dollars in imports, largely tolling on soybeans, as around 60% of US soybeans are shipped to China.

Soybean prices fell to a 10-year low this week.

Deere is not the only major agricultural producer damaged by the commercial war. Stocks of Caterpillar are also trading lower this year.

Jepsen said the production is scaling, is the first step in responding to the uncertain market.

In the second quarter, world sales increased by 6% to $ 11.34 billion, from $ 10.72 billion in the same period last year.

Deere saw improved sales in the construction and forestry division in the second quarter. Sales rose 11% to $ 2.99 billion, driven by higher shipping volumes and prices.

Despite the lower forecast for the year, Finance Director Ryan Campbell says the company expects a "full, gradual recovery" as challenges – including trading tensions, harsh weather conditions and lower demand for equipment – are reduced.

"Even though we reduced the net profit for the year, the $ 3.3 billion we now expect for the year will remain the second largest in our history. Our second quarter sales and revenues represent the largest second quarter in the company's history," Golden said. in an email. "We believe that several agricultural equipment customers pause their purchases due to short-term uncertainties. We continue to believe that the long-term factors remain intact to drive higher sales."

Associated Press contributed to this report.