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Brexit a boost for UK ag machinery market - for now, says Deere

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The UK's Brexit vote could bring a - short-term - boost to the UK ag machinery market, equipment giant Deere & Co said, even as debate raged anew about the economic impact on the country of quitting the European Union.

The US-based group, the maker of John Deere farm machinery, said that the decline in the pound since the UK voted in June to leave the European was proving a market fillip.

"Concerns around Brexit… is expected to drive some benefit for the UK," said Tony Huegel, the Deere & Co investor relations director.

"You've seen exports of used equipment become much more attractive with the foreign exchange shifts."

A drop by sterling of 10% against the euro, and more than 16% against the dollar, since June's vote has made UK exports more competitive, underpinning too prices of crops such as wheat, futures in which stand close to two-year highs in London.

Beating price rises

Meanwhile, the weaker pound had also, whetted demand from domestic growers, stepping in ahead of price rises expected as imported goods, including much machinery and raw, becomes more expensive.

"Most of those customers are expecting that they'll see some price increases, as most manufacturers are importing into the UK," Mr Huegel told investors.

"And so, again, with the foreign exchange shift that's likely to drive higher pricing, and so they're buying ahead of that."

'More downside than upside'

The comments come two weeks after Carr's Group, the feed-to-engineering group, flagged "signs of optimism" in the UK machinery market.

However, Mr Huegel stressed that this boost from currency moves represented only a "short-term" fillip.

"Longer term, obviously, that would likely have more downside than upside," as a weaker pound does feed through into raised machinery prices.

Indeed, Deere said that the uncertainty stemming from Brexit was fuelling ideas of a 5% decline in European Union machinery industry sales over the next year.

"Geopolitical risks such as Brexit remain elevated, contributing to the outlook for slow economic growth" in the EU, said Deere spokesman Josh Jepsen.

'Utter doom and gloom'

The comments com amide a fresh row in the UK over the economic impact of quitting the EU, after the official Office for Budget Responsibility, blaming Brexit, slashed its estimate for UK economic growth, and in turn for a £58.7bn hit to public finances.

Iain Duncan Smith, a former Conservative Party leader and a leading pro-Brexit campaigners, accused the Office for Budget Responsibility of "utter doom and gloom" in its forecasts, adding that the office was an organisation "that simply hasn't got anything right".

Philip Hammond, the UK chancellor of the exchequer, said that "We are looking at a range of possible outcomes and preparing for a range of possible outcomes.

"That's the prudent thing to do."

'Pressure clearly on sales'

Deere also cited in its forecast of a 5% drop in EU farm industry sales the setback to trade in France, the group's biggest European market, from this year's rain-damaged harvest.

After a "very difficult harvest, farm incomes are going to be lower. That's going to put pressure clearly on sales there," Mr Huegel said.

Furthermore, the long-term impact of the dairy downturn, which has badly dented producers' balance sheets, had yet to play out, despite a recent recovery in prices of milk, of which the EU is the world's top producer.

"The dairy sector continues to experience weakness, although there are signs the market is bottoming out," Mr Jepsen said.

By Mike Verdin

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