For nearly two centuries, Deere & Co. has built equipment to help farmers plant and harvest their crops. Now, the company’s financial muscle is doing more of the work providing short-term credit to farmers.
Throughout the Farm Belt, low prices for corn, soybeans and wheat are putting a strain on U.S. grain farmers, making it harder to get bank lending to plant a crop, or commit to purchasing multimillion-dollar fleets of new equipment.
Deere, the world’s largest manufacturer of tractors and harvesting combines, is stepping in to fill the gap. It already lends billions to finance farmers’ purchases of equipment. Now, it is providing more short-term credit for crop supplies such as seeds, chemicals and fertilizer, making it the No. 5 agricultural lender behind banks Wells Fargo , Rabobank, Bank of the West and Bank of America , according to the American Bankers Association.
Deere has also expanded its leasing program to get the company’s green and yellow tractors into the hands of farmers, even when they are unable or unwilling to pay hundreds of thousands of dollars to buy one.
Its financing has helped farmers stay in business while generating income for Deere during the worst market for machinery sales in more than 15 years.
Farmers’ incomes will decline for a fourth year this year, to half what they were in 2013, the U.S. Department of Agriculture projects. And inflation-adjusted debt is at a level not seen since the 1980s farm bust.
In shoring up the ailing sector, Deere’s loans may be helping draw out the pain for farmers, allowing them to continue to rack up debt despite a glut of grain world-wide that is keeping a lid on crop prices. The increase in equipment leasing, meanwhile, is weakening Deere’s own market for sales.
If crop prices remain subdued, “you’re just prolonging the agony and potentially building up [farm] losses instead of cutting the pain, cauterizing the wound and stanching the flow of financial blood now,” said Scott Irwin, an agricultural economist at the University of Illinois.
But if poor weather ultimately spurs grain prices higher, Mr. Irwin said, the risks of farm lending likely would be forgotten, and Deere could win new or more loyal customers.
Deere said it is responding to greater demand for leased equipment from farmers and for short-term credit from other farm-industry manufacturers such as seed companies that are offering aggressive financing through Deere as a sales incentive.
“Our core mission is to support sales of equipment,” said Jayma Sandquist, vice president of marketing for the U.S. and Canada for John Deere Financial, the company’s financing unit. “It’s a cyclical industry. We’ve built a business that we can manage effectively across all cycles, and our performance would indicate we can do that.”
The financing arm has shielded the Moline, Ill., company from the worst of the farm slump, keeping factories and dealers intact and investors satisfied with profits. Despite a 37% drop in sales of its farm equipment since a record high in 2013, Deere’s stock price is up 72% from its recent low in early 2016 and up 22% since the start of 2017.