Industry giant John Deere has lost orders due to the global crisis in the agricultural market. Swiss suppliers Bucher, Rapid and Aebi also have too little work for their employees.
The agricultural technology of industry heavyweight John Deere from the USA is very popular with farmers around the world, including here in England. But demand is currently stagnating.
Deere & Company is a giant in the production of agricultural machinery. No other company produces more tractors than the company from Moline in the American state of Illinois. The vehicles are usually in great demand among farmers around the world.
The company is primarily known for its John Deere brand and often appears under this name. The company is so popular that many farmers let their sons and daughters drive around in plastic toy tractors with the original green and yellow John Deere livery. For the company, this is the best guarantee that the farmers of tomorrow will also be among its customers.
Grain prices have fallen sharply
But things aren’t going well for John Deere at the moment. In the first nine months of the current fiscal year, ending July 2024, the company’s sales fell by 11 percent to $40.6 billion. Net profit even fell by 25 percent to $5.9 billion. Although the company continued to enjoy a high profit margin of 16.5 percent, in the same period last year it was almost 19 percent.
Like large parts of the agricultural sector, the world’s largest tractor manufacturer is feeling the effects of a sharp deterioration in the market environment. In the closed Swiss agricultural market, which is a special case due to its high protective tariffs and generous direct state payments to farmers, there are few signs of a crisis.
But farmers like American farmers who produce for the world market are suffering badly from the sharp drop in prices for agricultural goods. Prices for wheat have fallen by over 30 percent in the last two years, and for corn by more than 40 percent. Soybeans have also become significantly cheaper.
Fears for American farmers’ existence
In the American grain belt, where John Deere is based, some farmers are worried about their livelihoods. They are wondering how they will be able to cover their costs for agricultural machinery, energy, fertilizer, seed and crop protection products in view of these significantly reduced prices.
The Wall Street Journal recently cited a study by the University of Illinois, according to which farmers in this state are currently losing money for every hectare of corn and soybean production they cultivate – despite what appears to be an excellent harvest this year due to the weather. Back in February, the Department of Agriculture had already predicted that the net income of American farmers would fall by 25 percent in 2024 due to the significant drop in agricultural prices and the sharp rise in operating costs.
Against this background, many farmers do not have the money for new agricultural machinery. They are forced to continue using their older combine harvesters and tractors, even though these perform significantly worse than new models in terms of performance and fuel consumption.
Even vintage cars are proudly shown off by their owners – like at this tractor festival in June last year in Ripon, northern England.
John Deere lays off staff
At John Deere, incoming orders have declined so much that the company has been making adjustments to its workforce for months. According to press reports, almost 2,000 employees lost their jobs in the USA alone between September 2023 and July 2024. At the end of last year, the company had 83,000 employees worldwide.
In the media release on the latest business deal, CEO John May admits that the decisions were difficult. But the manager, whose total salary last year was over $26 million, believes the cost-cutting measures are necessary to ensure John Deere’s long-term competitiveness.
In the USA, the group expects the agricultural machinery market to contract by 15 percent. It is also pessimistic globally: it expects a similar decline in Europe in the current financial year, while it sees demand for tractors and combine harvesters in Latin America falling by up to 20 percent. Only in Asia is a slight decline foreseeable.
Three years ago, over 10,000 John Deere employees in the USA went on strike for higher wages – successfully, as salaries were increased by 20 percent. But now the company is making more and more layoffs.
Market collapse after two peak years
2021 and 2022 were still peak years for the agricultural technology industry. Farmers benefited from the sharp rise in prices for many agricultural goods. In addition, thanks to the low interest rates at the time, financing conditions were favorable.
Last year, however, a significant market correction began, as the Zurich-based company Bucher Industries also had to painfully experience. The subsidiary Kuhn Group, which specializes in agricultural machinery, suffered a 31 percent drop in global orders. Sales fell by just 6 percent to 1.4 billion francs in 2023 thanks to a still high order backlog at the time.
The slump continued in the first half of the year, with incoming orders shrinking again by almost a third. And now sales have also corrected significantly, by 17 percent to just under 700 million francs. Lower prices for agricultural products, high interest rates and fewer subsidies have led to a continued reluctance to invest among farmers around the world, the group wrote in its half-year report.
However, despite the significant deterioration in the business environment, Kuhn still generated a double-digit return on sales of 10 percent at the operating result (EBIT) level.
The much smaller agricultural machinery manufacturer Rapid is far from this. The company, which employs a total of almost 200 people in Killwangen in Aargau and at two locations in Germany and Romania, is expecting a loss this year. The earnings forecast is massively below expectations, management informed shareholders at the beginning of September.
Too high inventory levels at retailers
Rapid specializes in the manufacture of single-axle mowers, which are used primarily in mountainous areas. Aebi Schmidt also offers these. In Burgdorf, where Aebi Schmidt manufactures agricultural machinery and Aebi-brand vehicles, capacities are also no longer sufficiently utilized. The group, based in the city of Zurich and largely owned by the entrepreneur Peter Spuhler, continued to benefit in the first half of the year from good business in its main area, the manufacture of machines for winter maintenance.
As René Mannhart, the head of Rapid, explains, in addition to farmers’ reduced willingness to invest, the high inventory levels at dealers are a burden for suppliers of agricultural machinery. Despite the red figures, the company does not want to make any layoffs.
Mannhart also says that there is no discussion of relocating production from Killwangen or from Germany to a more cost-effective location. In Romania, only a handful of employees are employed to carry out the simplest manual tasks, and that is how it will stay.
But, similar to Kuhn, Rapid has also imposed a hiring freeze. Departures will not be replaced until further notice. Kuhn also ended its collaboration with temporary workers and employees on fixed-term contracts and laid off its first employees in Brazil, an important production site for the company. The industry appears to be preparing for a prolonged downturn.