U.S. farmers wary of buying new equipment as crop prices stall
By Meredith Davis
LOUISVILLE, Ky. (Reuters) - Nathan Applebee's family in Seneca, Illinois has farmed using John Deere equipment since the 1930s. The family still owns his great-grandfather's 1938 Model A, one of the first row-crop tractors.
All the equipment down to the lawnmower on the Applebee farm comes in Deere & Co's signature green. This year, though, he said his loyalty will not translate into any purchases of new Deere equipment.
"I have what I need," Applebee, 32, said after checking out a $355,000 Deere 8345 R tractor, with a 345 horsepower engine, and the latest in digital connectivity to enable precision planting. Features include connections to Internet cloud servers, additional display monitors for tractor functions and autosteer.
With U.S. farmers bracing for a third year of declining incomes, many have said they cannot afford those upgrades.
The Department of Agriculture has estimated U.S. net farm income will be $54.8 billion in 2016, down nearly 55 percent from 2013.
That means tough times for Deere & Co and rivals AGCO Corp, CNH Industrial NV and Claas KGaA mbH.
Deere is scheduled to post first-quarter fiscal 2016 results on Feb. 19. Analysts expect Deere to report that revenue slid to less than $5 billion from about $6.2 billion a year ago.
The reasons for the slump were evident last week among farmers at the National Farm Machinery Show in Louisville, Kentucky.
Deere's new tractors are marvels compared to the 1938 ModelA that Applebee's great grandfather rode, with its 25 horsepower engine, 4-speed transmission and 14-gallon fuel tank.
Deere's new tractors have inputs for iPads and can be outfitted with receivers to guide global positioning systems (GPS) aiding precise placement of seeds, fertilizers or pesticides. The GPS receivers cost from $3,000 to $12,000 or more.
Deere and rivals have kept technology investments a priority even as revenue and net income have fallen. But some farmers said the high-tech gear is out of reach. Jon Soeller, 40, bought a new John Deere planter in2014 for his family farm in Ripon, Wisconsin. He estimates itwould cost him $90,000 to $100,000 to upgrade with a John Deere ExactEmerge retrofit kit that would allow him to plant faster and more precisely. "It is not worth it to me. I don't think John Deere knowsthe price of corn is $3," Soeller said. His father will insteadbuy a new grain bin to store crops in hopes that prices rise.
Deere invested about $1.4 billion on research and development for new products and technology in 2015. It has forecast that 2016 R&D investment will drop 3 percent. In early February, John Deere closed a deal to buy Monosem, a European maker of precision planters. Deere entered a joint venture in 2015 with software developer DN2K to develop a platform for agricultural advisors and professionals. Deere officials have said these investments will pay off for farmers in the long run. "You're not just throwing seed in the ground and tossing dirt behind it," said Laura Donaldson, a business analyst in John Deere's Precision Agriculture group. "There is a science that is important to our customers,"
(Reporting By Meredith Davis; Editing by Joseph White and David Gregorio)
