Trade War Hurts Agricultural Equipment Manufacturers

I am not investing in the agricultural sector at the present time.  Why?

The American agriculture sector has taken a real hit as a result of Trump's decision to start a trade war with China and other countries.  This is yet another reason why I will sit on the sidelines and not invest in American farm companies.  The cycle will eventually change.  In the meantime, I am compiling a list of potential investments in the sector in anticipation of an eventual return to sunnier days.

US Farm Equipment Companies Pay More for Steel

Listen to this interview with an executive from Sukup Manufacturing (he is a Republican).  In response to Trump's tariffs on steel, US steel mills raised their prices by 30 percent!  You have to wonder how this has affected the competitive position of American farm companies.  They are already suffering from a depressed farm economy where farmers are struggling with depressed commodity prices and rising costs.

Former Legislator Steven Sukup on Manufacturing

Here is the Sukup Manufacturing web site:

https://www.sukup.com/

Here is another take which portends a more serious state of affairs in the American farm equipment sector:

The US import tariffs on steel and aluminium – of 25% and 10%, respectively – are a serious threat to this recovery. According to the Association of Equipment Manufacturers (AEM), steel makes up about 10% of equipment manufacturers’ direct costs. Now that most countries are exempted from the steel and aluminium import tariffs, the threat of rising steel prices for US manufacturers seems to be lower for the short term. These exemptions, however, are only temporary, and they depend on the outcome of further trade negotiations. Therefore, US agricultural machinery companies still potentially face a 2.5% increase in direct costs. In that case, prices of agricultural machinery will need to go up, putting pressure on sales growth, as US crop farmers face another year of depressed margins....

An even bigger threat for the market recovery of agricultural machinery are the retaliatory measures from the US’s trading partners. The import tariffs on US agricultural products lower prices of US agricultural commodities destined for export, which will negatively impact sales of agricultural machinery.  ...

It gets worse:

After several years of decline in the global market, the US agricultural machinery industry, in particular, runs the risk of receiving another blow. The US becomes a less attractive place for manufacturing agricultural machinery, due to the risk of a further depressed domestic market and the risk of a higher cost of steel. And the competitiveness of American agricultural machinery companies on the domestic and world market is also at risk. As a result, we can expect manufacturing assets in the US to decline in value, creating opportunities for companies that take a long-term approach to building or strengthening their position in the US.

https://research.rabobank.com/far/en/sectors/farm-inputs/Opportunities-Arising-From-Turbulence-in-US-Agricultural-Machinery-Industry.html

My Take-Away

The analyst at Rabobank may underestimate the resilience of American manufacturers, but his observation has led me to extend my research further afield - to include companies based outside the US.  In this regard, I am paying close attention to offshore companies which are setting up distribution and/or manufacturing centres in North America and South America.