John Deere recently laid off a significant number of salaried employees as part of the company’s ongoing workforce reductions. The official number of layoffs is still unknown but are part of a broader trend of workforce reductions at John Deere, which have been ongoing for several months.
Cory Reed, president of the company’s Worldwide Agriculture & Turf Division for Production and Precision Ag, spoke publicly about the layoffs for the first time in an exclusive interview with U.S. Farm Report this week.
What You Need to Know
Reed addressed everything from the recent layoffs to the company’s decision to move a small portion of its production to Mexico. Here are highlights from Farm Journal’s exclusive interview:
- John Deere says recent layoffs of both its salaried and production workforce are due to lower net farm income, higher interest rates and market volatility.
- Reed says John Deere expects equipment sales to be down 20% in 2024, due to economic pressures on the farm.
- John Deere is addressing cost concerns by reducing the prices of some new technologies, such as the See & Spray retrofit kit.
- John Deere is investing in automation to improve manufacturing efficiency and reliability.
- Reed emphasized the job cuts are unrelated to the 2021 strike by production workers.
- He also stressed that John Deere’s decision to move its cab production to Mexico is separate, saying that production site in Mexico has been in operation for nearly 70 years, calling it “an important part of our global footprint.”
The Reality of the Farm Economy
USDA is forecasting net farm income in 2024 to be $116.1 billion, which is a 25.5% drop from 2023 following a 16% drop in 2023 versus 2022. Those two consecutive years of significant decline mark the largest drop in net farm income in U.S. history.
“Net farm income is expected to be down in the mid to high 20s, and when that happens, and commodity prices pull back, interest rates are a little bit higher and we see volatility in the weather, it creates uncertainty that interrupts demand. We’re experiencing that today. Looking out across our industry, we’re expecting to be off roughly 20% year-over-year from 2023,” Reed told U.S. Farm Report.
The mounting economic pressures are showing up across the equipment industry. The latest Association of Equipment Manufacturers (AEM) flash report released in June showed just how drastic of a drop the ag equipment sector is currently experiencing. AEM’s report showed combine sales in June dropped 31% compared to last year. Total farm tractor sales were down 16%.
While the company forecasts equipment demand to fall 20% overall in 2024, Reed says the second half of the year looks to be even more challenging than the first.
“We kind of have the tale of two ends of the year, “ he says. “If you looked at the front half of the year, in fact, if you took the large row-crop tractor business, what you would have seen is a market that was still peaking in the April and May time frame. A lot of buyers were in the market, based off of performance last year. As we hit May and going into June, used inventory levels started to grow and you saw buyers starting to pull back. Those trade differentials look different for them, and they started pulling back at a faster rate.”
As farmers pull back on purchasing new equipment, the short-term market outlook is hard to project, according to John Deere.
“I think what you see is markets that are cycling faster today. When you see what was going on in the commodity market, it’s been more volatile here recently. So obviously, we’d like to have better predictability of those things. What I would tell you is the long-term outlook for global commodities grown here in the U.S. still look really strong. We’re still bullish on that,” Reed says. “It’s the reason that even when we see these cycles potentially coming, we invest directly through them. We’ve never invested more in research dollars than we did this year, and in the next five years we will invest more than we have over the past five years. That’s a testament to what we believe about the future of the agricultural industry. We’re doing that around the world.”
John Deere Says Layoffs Are Unrelated to 2021 Strike
With the drop in equipment demand, came cuts to the salaried workforce this week. But the company had already cut more than 1,800 workers in its Iowa and Illinois production facilities.
In October 2021, those same production sites were in the news after 10,000 production workers went on strike. But a month later, John Deere and the United Auto Workers (UAW) Union reached a new six-year deal. With a 20% increase in pay granted by John Deere, UAW ended its month-long strike. But Reed says the job cuts today are not tied to that.
“Certainly, cost, availability and reliability of labor in the workforce is a factor all the time. Cuts right now are not related to that, they’re related to demand,” he adds.
As a result, Reed says John Deere is turning internally to manage its own cost structure, which means layoffs. Those started last September and have accelerated in 2024.
“We don’t like making workforce adjustments. We don’t. But that’s all about the cost structure we have, so we can hold the line on costs. We’re deploying more of our engineering resources to cost-reduce each part without sacrificing any reliability, durability or quality. We’re doing that in a big way,” Reeds adds.
John Deere has committed to providing severance packages to the affected employees. The packages include up to 12 months of severance pay based on years of service, pro-rated pay based on short- and long-term incentives, payment for unused vacation or paid time off, ongoing access to health and wellness benefits and a year of professional job placement services.
The Question on Every Farmer’s Mind
The question on every farmer’s mind: Does John Deere have any plans to cut the price of equipment? Reed says John Deere is addressing cost concerns by reducing the prices of some new technologies, such as the See & Spray retrofit kit.
“We’re taking some of our latest technologies, and we’re cutting the upfront price of it,” Reed says. “If you take See & Spray, which is a great example, that product would normally cost hundreds of thousands of dollars to add to a machine. We lowered the upfront price for a retrofit kit to be able to put it on for tens of thousands of dollars. A customer who wants to manage their herbicide cost differently has the opportunity to buy into that, on an acre-by-acre basis, and only pay based on what they save.”
John Deere’s Decision to Move Cab Production to Mexico
John Deere is also catching some backlash for its decision to move its cab operations from Waterloo, Iowa, to Mexico, which impacts a couple hundred U.S. jobs. According to Reed, John Deere’s production site in Mexico has been in operation for nearly 70 years. What started in 1956 became one of the company’s first operations outside the U.S., and Reed calls it “an important part of our global footprint.”
“First and foremost, it’s important to understand that the movement of certain components or products to Mexico is entirely separate from what we’ve seen in terms of layoffs today,” Reed says. “When we move a product, we make the announcement and say, ‘This portion of this product is going to move here.’ And by the way, we’re doing that all the time. It’s a part of what we do in our global network.”
Reed says what’s not reported when John Deere makes such an announcement is how they are replacing their production in the U.S. with the manufacturing of a new product or piece of equipment. While the cab production might be moving to Mexico, he says they are now building the new 9RX 830-hp four-wheel drive tractor there.
“If you drove to Waterloo today and went into the operations, what you’d see is that brand new tractor going down the very place in the factory where those cabs were manufactured before,” Reed says.
What John Deere Wants Farmers to Know
As John Deere aims to align production inventory levels with current market demands, the down cycle of agriculture is hitting all of the industry hard, but Reed says he’s still bullish on agriculture long-term. When asked what he wanted farmers to know, Reed’s message was this:
“We have 80,000 employees in the company. We wake up every day with the same purpose. That purpose is quality, innovation, integrity and commitment to our customers. We want to grow value on each and every one of those farms. We want to do it in a way that every day they wake up, with every pass they make through the field, they have confidence they’ve partnered with someone in the industry, John Deere and our John Deere dealers, working to drive value, working to drive profitability, on each and every one of their farms,” Reed says.
You can watch the full interview with Reed here.
