In early October, I wondered whether there was agricultural angst ahead. I'm glad I didn't rule out serious spillover from the failing financial sector, because that's exactly what we're seeing today.
CNH Global (NYSE: CNH ) , the farm and construction equipment supplier, was experiencing a full-blown bonanza just seven months ago. But the shares are down more than 30% today, following the firm's earnings release. 2008 saw record performance in the agricultural equipment segment, but that's all in the past.
Challenging -- the company's choice of words -- is probably an understatement for the the 2009 outlook. CNH expects first-quarter construction-equipment retail unit sales to drop 35% to 40% year over year. To work off inventories in this segment, the firm is idling the relevant factories for the next several months. Even Latin America, which had partially offset sagging North American demand in 2008, should face a significant decline.
What about the Obama bump, or its Chinese analogue -- the Wen wave? CNH points out two reasons not to expect much help from stimulus spending this year. First, the effects really won't be felt until late 2009 or 2010, and second, they may just offset declines elsewhere, rather than boost net demand.
The gloom in this report has sectorwide implications, spelling softness for everyone from big boys Caterpillar (NYSE: CAT ) and Deere (NYSE: DE ) to smaller shops like AGCO (NYSE: AG ) and Terex (NYSE: TEX ) . If you're riding the agriculture wave, make sure the company in which you're invested won't be a victim of the undertow. In other words, look long and hard at the firm's on- and off-balance sheet liabilities, and its ability to satisfy these obligations with significantly diminished cash flows.