George Gallanis
In a recent earnings meeting, farm equipment manufacturer giant John Deere called for the cutting down on costs and increase in profits through “organizational efficiency.” Bearing the cost of this “efficiency” will be Deere workers, who confront reduced hours and possible layoffs numbering in the hundreds, if not thousands.
Deere published a news release on August 16 citing decline of revenue in certain areas.
It reported global net sales and revenue, i.e., money earned through sales with customers before taxes, expenses etc. are taken out, decreased 3 percent, to $10.036 billion, for the third quarter of 2019. Net sales of the equipment operations were $8.969 billion for the same quarter compared with $9.286 billion last year.
Deere reduced its projected full-year net income, money left over after deducted expenses like payroll, to $3.2 billion and annual sales growth to 4 percent, from the previously expected $3.3 billion. Previously it projected annual sales growth of 5 percent.
Samuel R. Allen, Deere’s chairman and chief executive officer, stated "John Deere's third-quarter results reflected the high degree of uncertainty that continues to overshadow the agricultural sector” due in part to "concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases.”
Growing trade tensions between China and the United States have stymied export incomes of American farmers. According to the American Farm Bureau, in 2018, China imported $9.1 billion of U.S. farm produce, down from $19.5 billion in 2017.
US shipments of soybeans to China fell to a 16-year low last year as China bought soybeans mostly from Brazil.
Meanwhile, a record-setting wet spring destroyed crop yields for large sections of the American farm belt. Heavy rains led to flooding, which delayed and prevented planting, and was made worse by hot and dry summer weather, which decreased corn and soybean yields.
According to the US Department of Agriculture, across the country some 19.4 million insured acres went unplanted due to the rains, the highest amount ever since the government started tracking it in 2007.
Illinois, the leading US state for soybean exports, has seen 15 major farm bankruptcies over the last 12 months, up from 10 the year before. At the start of August, the United States Department of Agriculture (USDA) declared an agricultural disaster in all 102 Illinois counties because of flooding. Due to retaliatory measures by China in response to Trump’s trade war measures, agricultural exports from Illinois to China fell 77 percent last year. Across the United States, there were a total of 535 Chapter 12 bankruptcy filings, a spike of 13 percent, or 60 bankruptcies, in the past 12 months, the highest since 2012.
Speaking to the Chicago Tribune, Caroline Bartz, whose family operates a farm in central Illinois, said, “I tell ya, it’s a nightmare. In 50 years of farming, I have never seen anything like this year—never.”
These factors have led to decreased equipment sales, affecting Deere’s fiscal bottom line.
Deere is responding to the growing trade war, decreased farm equipment sales combined with the looming threat of recession by seeking to impose this crisis on workers. In a Deere earnings call on August 16, 2019, attended by Deere’s shareholders and executives, Ryan D. Campbell, a senior vice-president & Chief Financial Officer at Deere, foreshadowed the company’s plans:
“As these challenges persist, we are now beginning more aggressive actions on our cost structure to create a more efficient and nimble organization. These actions, which will involve organizational efficiency, a footprint assessment and an increased focus on investments with the most opportunity for differentiation, are in support of our aspiration to achieve 15 percent structural operating profits by 2022 and will position us to capitalize upon the resumption of replacement demand growth.”
Campbell’s call to increase operating profits, money earned from core business operations like equipment sales, by 15 percent means the amassment of hundreds of millions of dollars on top of their current total. According to macrotrends.net, as of July 31, 2019 the current operating profit margin for Deere is 8.27 percent. A 15 percent margin means almost doubling the current figure.
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