(Bloomberg) -- Deere & Co. is banking on farmers spending their bailout money on tractors. But with the trade war dragging on and farm credit conditions deteriorating, that could turn out to be a risky bet.
The world's biggest tractor maker expects its fourth-quarter sales will increase from a year earlier, with more of the Trump administration's trade-war payments for farmers lifting farm cash receipts for 2019.
The latest bailout includes $14.5 billion in direct payments to farmers, which could lead to some “incremental demand,” Deere executives told analysts on a Friday call to discuss financial results. The impact could be delayed or dampened by the tough agriculture environment, Luke Chandler, Deere's chief economist, said.
But farmer debt is rising as Trump's trade wars have stifled export markets. Agricultural credit conditions in the seventh district deteriorated in the second quarter, with the highest portion of customers having major or severe difficulties repaying loans in 20 years, according to the Federal Reserve Bank of Chicago.
Farmers may not go for six-figure tractors and combines with their windfall, said Bloomberg Intelligence analyst Chris Ciolino. They'll more likely use it more conservatively to pay down debt, or even save it.
“There's a growing risk that the replacement cycle gets delayed beyond 2020 given the persistent trade uncertainty,” Ciolino said. “I have trouble seeing a catalyst in the near-to-mid term that will instill enough confidence.”
To contact the reporters on this story: Lydia Mulvany in Chicago at lmulvany2@bloomberg.net;Isis Almeida in Chicago at ialmeida3@bloomberg.net
To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net
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