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Global Trends in Agriculture: A Farm Machinery Manufacturer’s Perspective
2007-11-04
Today I'd like to talk just a little bit about some of the major trends that are shaping agriculture as it moves through this century and on into the next millennium. I think it's particularly important to this region since such a large component of your economy is agriculturally based -- upwards of 20 percent of all of the jobs in the region that this group is focusing on are related to agriculture. In states such as Iowa, Nebraska, North and South Dakota, over 90 percent of the land use is devoted to agriculture. Farming, as you might imagine, remains critical to the John Deere Company as well. Although we've diversified our operations a lot in the last several years, still fundamentally and more importantly at the core of our business is our agricultural equipment business and the support of it. And for us certainly the North American producer is our No. 1 customer.
But we're all aware that the farm economy is struggling right now, and it's primarily due to depressed grain prices and livestock prices. And, to no one's surprise, retail sales of farm equipment are down about 30 percent this year. That is one of the most severe single year declines that we've seen in recent years. So the impact that's affecting all of our producers is manifesting itself throughout the agricultural sector this year.
Accordingly we, along with other manufacturers, have made pretty aggressive cutbacks in production. We've tried to bring a good balance to inventories in order to bring some sensibility to the market.
One of the farmers recently on an Internet board put up a message that sums it up this way. He said, “The quality of the grain equipment is there but the quantity of the grain money to pay for it just isn't”. Of course the farm economy going into this down cycle was in a lot better condition than it was when we went into the down cycle in the mid 1980s. One of the big differences is the cost of money. That's dramatically different today than it was in 1981 and '82 when we started another downturn in this business. There's nothing from our vantage point to suggest that we're going to return to a repeat of the severity or the length of the downturn that we saw back in 1980. One of the real bright spots is that, for the longer turn, the fundamental underpinnings of the agricultural business are still very strong. The key forces that are dictating change in agriculture today are the concern over increasing open markets, freer trade, the explosive growth in technology that's transforming our entire agricultural economy these days, plus the continuing importance and influence of environmental issues. Let's take a closer look at those issues.
The first point is that farming is becoming more and more market oriented. Most of us would say that we believe in free trade and open agricultural markets. We believe that North American farmers have got a lot to gain from such a situation. We have, after all, some of the most productive farmland in the world, we've got an excellent infrastructure to provide distribution of our agricultural commodities, and we've got access to highly productive farm equipment throughout the system. Well, just what does an open market increasingly free of controls and restrictions mean to the farm sector? Mostly, we think it's going to accelerate the trends under way, putting a premium on the large, more efficiently run operations. They're going to be able to make the most out of today's technology and fast-moving markets. Many of these operations are going to continue to be family-owned, but the trend of attrition and escalation of fewer and larger farms it appears is going to continue to grow. I don't want to say unabated, but it's going to be accelerated in the short term in this downturn. Less regulated farming will have a positive impact in terms of the overall economic influence, and it's likely a plus for both U.S. and Canadian agricultural producers as well. It's going to give North American agriculture a leg up in the global market.
