Drought may lead to boon for farming equipment manufacturers in mid-term

At first glance, this year’s dry conditions may look like a disaster for both U.S. farmers and the equipment manufacturers that depend on agricultural activity for their own livelihood. However, the reality of the situation is more complicated.

Samuel Allen, chairman and chief executive officer at Deere and Co., recently said “This year’s drought could positively influence our outlook.”

J.B. Penn, the chief economist at Deere and a former official with the U.S. Department of Agriculture, explained that, although this season’s orders of farm equipment will be stifled by conditions, there is a strong chance that a significant rebound will occur next year.

Penn points out that the current tightness in the food market will lead to higher crop prices, which will buoy farmers’ financial situation during the next growing season, assuming production returns to normal levels.

This may lead to an increased willingness to invest in equipment. Crop insurance is another factor that will help farmers emerge from the drought on solid financial footing.

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