John Deere, the world’s largest farm-equipment maker, reported strong quarterly earnings on Friday. The company beat Wall Street earnings estimates and raised their net profit forecasts for the rest of the year. This positive report gives an indication of the global agricultural economy’s state because, when consumers invest in big-ticket items, such as cars, sofas, and washing machines, they usually feel optimistic about their finances. The same is true for farm equipment, says an agricultural economist at the University of California, Davis, Daniel Sumner.
When farmers have extra cash flow, it means they are not in imminent danger. And the large number of machines John Deere is running reveals that the world’s commercial crop producers are doing well, Sumner said. Corn, soybeans, wheat and rice were in particularly high demand after Russia invaded Ukraine last year, removing a lot of offline production capacity, according to Kristen Owen, executive director of Oppenheimer. As a result, prices have skyrocketed as global supplies of grains and oilseeds have run out. Farmers can now afford to make some investments.
However, Krista Swanson, chief economist at the National Corn Growers Association, warns that John Deere’s strong earnings report does not mean all is rosy for commercial farmers. She calls it a lagging indicator and adds that commodity prices are settling. Farmers could face tighter margins in 2023, with rising borrowing costs and inflation hitting everything from seeds to fertilizers.
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