John Deere Cuts 600 Jobs Amid Falling Crop Prices

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Agricultural angst is percolating through the food chain, evidenced by significant layoffs at major farming equipment suppliers. Recently, John Deere of the US announced it will lay off nearly 600 workers, following similar actions by peers AGCO and CNH Industrial. Shares in these industry giants have slumped, experiencing a 10-20% decline year to date.

This downturn is more than a momentary blip. The agricultural machinery sector is inherently cyclical, closely linked to broader economic sentiments and crop yields. Post-COVID, sales boomed as farmers and investors saw rich returns. Russia’s invasion of Ukraine further inflated prices for oil, wheat, and fertilizer, encouraging farmers to invest in new equipment to leverage tax benefits.

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However, falling prices for key crops like corn, soybeans, and wheat have now cast a shadow on the industry. Higher interest rates are dampening enthusiasm for big-ticket purchases. The European agricultural machinery association, CEMA, forecasts a drop in machinery sales volumes by as much as ten percent this year.

In a bid to manage declining demand, John Deere’s layoffs are seen as a necessary step to trim costs, with industry experts cautioning that more layoffs might follow. Production could also see further reductions, idling capacities. On a brighter note, inventories haven’t yet swelled to the point requiring significant discounting.

Like many sectors, agricultural machinery is increasingly turning to digital innovation to navigate these cyclical downturns. The John Deere 8R fully autonomous tractor, controllable via smartphone, debuted at CES 2022, exemplifies this trend. Precision agriculture, where data like field boundaries and soil density guide seeding machines for optimal planting, is gaining traction. CNH’s $2.1 billion acquisition of Raven in 2021 underscores the industry’s push towards autonomous and precision technology.

However, diversifying revenue streams beyond traditional equipment sales remains a challenge. Unlike the aerospace sector, aftercare responsibilities largely fall on dealerships. Meanwhile, subscription-based farm management apps struggle to gain traction, partly due to connectivity issues in rural areas.

Even large investments, like Monsanto’s $930 million purchase of The Climate Corporation in 2013, have faced hurdles. Monsanto had to postpone its profitability targets for the data science platform to 2020, by which time it had been acquired by Germany’s Bayer.

While digital advancements offer some benefits, they can’t fully counteract the effects of falling commodity prices. New machinery, though desirable, is not essential. With existing equipment often having a lifespan of five to ten years—and older tractors, some as old as 20 or 30 years, still in use—this cycle’s turning point appears to be some way off.