By Kirk Maltais

Agricultural companies' bottom lines are taking a hit for a slew of reasons, including uncertainty around tariffs, higher costs and avian flu, but the firms are hoping the tide will turn later this year.

These companies, which sell seeds, fertilizer, equipment and other supplies to the nation's farmers, are hoping higher grain prices and lower costs will give farmers wiggle room to spend more money--in turn bolstering profits for the companies that sell to them.

On Thursday farm-equipment provider Deere & Co. said it expects the stubbornly high input costs faced by U.S. farmers in recent years to ease--which may, albeit slowly, allow farmers to increasingly return to purchasing more new farm equipment like tractors and augers.

Deere said that, while it reported a 30% drop in net sales and a 50% drop in net income for the quarter compared with a year earlier, rising grain prices may help the company turn around later this year. "Quarter over quarter, we've seen the ag fundamentals improve," Chief Financial Officer Josh Jepsen said on the earnings call.

Input costs--the cost of materials that farmers need in order to work on their farms and grow crops, such as fertilizer, fuel for their farm machinery, and labor--have been easing for three years straight, said Deere director of investor relations Josh Beal on the call.

To be sure, potential fallout from the Trump administration's tariff plans means farmers, and the companies that serve them, face continued uncertainty around costs.

"Our primary focus remains on understanding how proposed tariffs may impact our customers' operations as we recognize their need for free and fair trade and commodities," Jepsen said on the call.

Other agricultural companies that have reported this quarter are noting signs of improvement in 2025.

"Farmer margins are improving," said Chuck Magro, chief executive of agricultural chemical-and-seed company Corteva, Inc., on its fourth-quarter earnings call earlier this month. "They're not great by any stretch, but they are much better than they were last year."

Farmers in 2024 said their prospective crop budgets for 2025 were running at a deficit, with average grain prices coming in below the level farmers need in order to break even. But futures have staged a mild recovery since then--which, combined with gradually easing costs, means farmers have a shot to post a profit with this crop.

Year to date, most-active corn futures trading on the Chicago Board of Trade have gained nearly 9%, while soybeans have risen over 3% and wheat has gone up nearly 9%.

Also propping up expectations for farmers' bottom lines are relief payments passed through Congress in December. In a recent report, the Agriculture Department said it projected 2025 farm income in the U.S. to rise to $180.1 billion, up $41 billion from 2024.

But the report also said that uptick was supported by a forecast of $42.4 billion in aid payments to U.S. farmers in 2025--up roughly $33 billion year over year, or more than quadruple what they totaled in 2024.

The huge uptick stems from the America Relief Act of 2025, which was passed in late December. The act includes $110 billion of relief for several states, with $31 billion applied to providing disaster and economic assistance to agricultural producers.

The boost in federal funding may allow companies posting weaker earnings to see more farmer demand for their products. "Farmers will have what they need to make the investment in this next crop in the seed and the inputs, to plant the right crops and have the right productivity," said Gregory Heckman, chief executive officer with agribusiness giant Bunge, during an earnings call last week.

While input costs have eased, there are signs that their recovery may sputter out. Fertilizer prices have been on a gradual slide since finding record highs in 2022, but they did post a sharp uptick earlier this month, according to data from research firm DTN. Fertilizer is one of the most important costs for farmers to budget for, although other things like seeds, pesticides, and labor also claim sizable portions of farmer money.

Volatility in the Trump administration's trade-related announcements is a factor that's giving inputs like fertilizer a push higher in the short term. On Thursday President Trump signed a memo asking federal agencies to study reciprocal trade, an effort to match tariffs already placed on American goods by other countries.

Resurgent inflation may also knock a recovery off course. The Bureau of Labor Statistics reported this week that consumer prices were up 3% in January versus where they were the same time last year. Higher-for-longer interest rates are seen as an additional source of pressure on farmers' budgets.

Write to Kirk Maltais at kirk.maltais@wsj.com

(END) Dow Jones Newswires

February 14, 2025 13:06 ET (18:06 GMT)

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