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JP Morgan says US farmers are facing a crisis from trade war, downgrades Deere's stock

Key Points
  • U.S. agriculture is facing a three-pronged crisis of declining exports to the rest of the world, a poor crop of corn and soybeans and the trade war with China, J.P. Morgan says.
  • "Overall, this is a perfect storm for US farmers," analyst Ann Duignan says
  • Given the risks to U.S. agriculture, Deere's stock is "now skewed to the downside," Duignan says.
An attendee passes in front of John Deere brand tractors displayed during the World Agriculture Expo in Tulare, California, on Tuesday, Feb. 12, 2019.
Patrick T. Fallon | Bloomberg | Getty Images

The state of American agriculture is "rapidly deteriorating" into crisis, J.P. Morgan said Tuesday, due to three factors: declining exports, a poor crop of corn and soybeans and the trade war with China.

"Overall, this is a perfect storm for US farmers," J.P. Morgan analyst Ann Duignan said in a note to investors.

The most pressing issue facing farmers is that global agricultural markets are oversupplied, and that's putting "increasing pressure" on U.S. agriculture exports, Duignan said. A Department of Agriculture report last week "portrayed a grim outlook for US farmers" in that regard, she said.

"As a result of tariffs and excess global supply, US soybean export inspections are down 27%" year over year, Duignan said. She added that, at the same time, South America is having a banner year for production so "the export market is growing ever more competitive.

On China specifically, Duignan pointed to an outbreak of African swine fever in its hog herd as likely to cause a significant decline in "Chinese import demand for soybeans." The fever reduced about 30% of China's hog herd, according to J.P. Morgan. A decline in China's import of soybeans would be in addition to the tariffs already placed on U.S. exports of the crop, which has historically been the biggest American agricultural export to China.

Domestically, "the Midwest is off to a very slow start in 2019/20," Duignan said. The planting season is "off to a bad start," and corn and soybean crops are far behind in "planting progress" compared with last year, she said.

Deere downgrade, AGCO upgrade

Given the factors facing U.S. agriculture, Deere's stock is "now skewed to the downside," Duignan said. Her firm lowered its rating of Deere to underweight from neutral, with a price target of $132 a share, from $154 a share.

Instead of Deere, J.P. Morgan recommended AGCO Corp., "given its limited exposure to the US row crop sector." J.P. Morgan upgraded AGCO to overweight from neutral, with a $77 a share price target, up from $66.

Deere shares rose 1% early trading Tuesday from Monday's close of $146.28; AGCO shares also were 1% higher from Monday's closing of $70.47 a share.