Deere & Co, which manufactures John Deere equipment, announced its second-quarter earnings recently. Despite sales increasing 34% in the second quarter to $10.7bn (€9.1bn), with a 17% rise in operating profits to $1.5bn (€1.3bn), the company intends to increase prices on its tractors and combines to meet rising costs.

Deere’s profit margins for the quarter were squeezed from 15.4% last year to less than 14% in 2018. Samuel R Allen, chair and CEO, said: “Farm machinery sales in both North and South America are making solid gains. At the same time, we are experiencing higher raw-material and freight costs, which are being addressed through a continued focus on structural cost reduction and future pricing actions.”

Freight costs

In the last year, freight costs have increased by 30% due to a shortage of drivers and rising oil prices. This comes at the same time as US president Donald Trump placed tariffs on imports of steel and aluminium whose prices have risen in recent months. The two metals are widely used across the machinery manufacturing process. Looking to the future, Deere’s worldwide sales of agriculture and turf equipment are forecast to increase by about 14% for the fiscal year 2018.

Sales of agricultural equipment in the US and Canada are forecast to increase by about 10% which is being led by a higher demand for larger equipment. A more modest 5% increase in sales is expected in the EU 28 thanks to favourable conditions in the livestock and dairy sectors. Further afield, the sales forecast for Asia is expected to be flat.