May 24, 2018 by Scott Garvey

Steeling for higher prices

John Deere has announced the rising cost of steel is forcing it to increase sticker prices on new machines

John Deere, the brand that owns the lion’s share of the farm equipment business in North America, announced recently it had a pretty good start to 2018. In fact, it estimates its net sales and revenue for the year will jump by a whopping 26 percent over last year. Whether that prediction holds may soon become a matter for debate.

Demand for farm equipment in the U.S., remains a little sluggish, although recent months have seen significant surges in sales of combines, which are up by 21 percent compared to this time last year. But sales of rigid-frame tractors over 100 horsepower are still soft, down 5.7 percent on a year-to-date basis.

Global sales elsewhere, including Canada, are the company’s saviour, making up for those lukewarm U.S. sales numbers.

That has pushed Deere’s share price up a bit in recent days, but overall, stock markets have been under pressure lately with share prices of companies across manufacturing sectors sagging. The reason, according to all analysts, is the uncertainty in the world economy from the evolving trade policies of the U.S. Administration.

“Material and freight costs have exceeded our forecast for the year, due largely to inflation in U.S. steel prices and a tight market for logistics,” said chief financial officer Raj Kalathur.

Deere executives and those from other major brands have stated that the U.S. Administration’s announced 25 percent tariff on steel and 10 percent on aluminum bound for U.S. factories will affect demand for goods and push prices higher. Even before those tariffs have been officially implemented, steel prices in the U.S. have surged.

The public position of the White House was the evil empires of the world, like Canada and countries of the European Union who export steel to the U.S., were putting the national security of that country at risk, hence the need for tariffs. Listening to various officials from the U.S. Administration make statements to that affect reminded me of Mike Myers’ famous movie character, Dr. Evil. I think many people hearing them wanted to put their pinkie finger to the corner of the mouths and say, “r-i-g-h-t”.

And as White House spokespersons continued pushing that narrative, even beer brewers were complaining of the resulting increased cost of producing aluminum beer cans, and they, too, will need to raise prices.

John Deere’s announcement that costs are up is just the latest in a line of similar statements from manufacturers explaining why prices on its products are headed northward. The American Automotive Policy Council, which represents the Detroit Three automakers, issued a public statement back in February warning they would also be forced to boost sticker prices due to higher steel and aluminum costs.

Now there are threats of another 25 percent tariff to be applied to Canadian-built autos and-or components crossing the border, because they, too, apparently threaten U.S. national security. So, if things stay on course, expect an increase in the cost of new vehicles as well.

With more expensive farm equipment on the horizon and the possibility of more expensive cars and trucks, all Canadians, including farmers, will feel the “Trump affect”. How much more there is to come is anyone’s guess.

 

Scott

Scott Garvey

Scott Garvey


Grainews' machinery editor Scott Garvey follows trends and innovation in equipment technology, takes a look at new farm machinery offerings, tracks their performance and goes into the workshop to find better ways to keep them up and running.


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