Economic rebounds in China and India will support crop-price gains without spurring inflation in the next 18 months, according to J.B. Penn, the chief economist for Deere & Co., the world’s largest maker of farm machinery.
Recoveries in Brazil and the U.S. will also be good for farmers, Penn said today in an interview at a global-hunger conference in Des Moines, Iowa. Declines in the prices of corn, soybeans and wheat from records last year represent a “rebalancing” of commodity costs that is laying the groundwork for growth, he said.
“As the global economy recovers, we can see demand pick up again,” said Penn, a former undersecretary at the U.S. Department of Agriculture.
Deere has been hurt by falling demand for farm machinery as crop prices fell. The company, citing weak economic conditions, said Sept. 29 that profit will fall short of its full-year forecast of $1.1 billion because of a $300 million impairment charge to write down the value of a landscaping business in its fourth quarter. Profit was $2.05 billion in the previous year.
Moline, Illinois-based Deere has gained 15 percent this year in New York Stock Exchange trading, after plunging 59 percent in 2008. The shares rose 22 cents, or 0.5 percent, to $43.97 at 3:43 p.m. in New York.
Deere is planning to expand in Asia, Africa and the rest of the developing world by boosting sales of products tailored to those regions, Chief Executive Officer Samuel Allen said last month.
Between 2006 and 2008, Deere’s revenue grew more than six times as fast outside the U.S. and Canada as it did within that region. North America will remain important while smaller tractors and other equipment are adapted to smaller third- world farms, according to Allen.
Growth outside the U.S. will also be necessary to meet food demand the United Nations expects to increase by 70 percent by 2050, Penn said.
The number of people going hungry each day has expanded to a record 1.02 billion people, the UN Food and Agriculture Organization said this week. Climate change is contributing to water shortages and land degradation, while dwindling fish catches and the use of crops to make fuel and cereal grains to feed livestock will weigh on food availability, the agency said in a February report.
Aid for Agriculture
The world’s poorest people currently spend half their income on food, according to the World Bank. The Group of Eight developed nations in July pledged more than $12 billion over three years in agricultural investment to help poor farmers become more productive, a vow reiterated at the Group of 20 nations in Pittsburgh last month.
Penn, 64, served as an undersecretary with the USDA from 2001 to 2006 before joining Deere. At the USDA, he helped write the 2002 Farm Bill and worked to reopen markets closed to U.S. beef because of concerns over mad cow disease. Before that, he was a senior vice president with Sparks Cos., the Memphis, Tennessee-based commodities-research company now known as Informa Economics Inc.