Tag Archives: deere
John Deere Lures Africa’s First-Time Buyers of Tractors
SEPTEMBER 12, 2013 Continue reading
Analysis – Lower Crop Prices A Pain For Deere, But Farmers Are Fine
http://s1.reutersmed…r=CBRE97E0YUC00 By James B. Kelleher CHICAGO | Thu Aug 15, 2013 1:32pm BST (Reuters) – Wall Street’s frosty reaction on Wednesday to Deere & Co’s ( DE.N ) latest quarterly earnings is no surprise given the recent sharp drop in agricultural commodity prices. Farmers buy fewer tractors and harvesters when corn and soybean prices are down. But the dramatic drops in corn and other prices over the past year are not causing a lot of pain on the farms. At least not yet. With income at records highs, farmland fetching top dollar and balance sheets strong, a drop in grain prices in the face of another record crop is hardly a sign of doom for growers. Lower prices are generating a lot of uncertainty around Deere, however. For the world’s largest maker of tractors and harvesters, as goes the price of corn, so too goes the price of the company’s shares. Deere prefers to talk about the correlation between farm cash receipts and the sales of its distinctive green and yellow equipment. And it is true that the two move up and down in tandem. But the correlation between its stock price and the price of corn on the Chicago Board of Trade is pretty high, too. That is why the last few years have been so good to Deere: Both corn prices and farm income were on a tear. For decades, corn prices hovered between $2 (£1.29) and $3 (£1.93) a bushel, but they surged as high as $8.49 a bushel during last summer’s drought. Supplies were tight, even as demand from China and other emerging markets increased along with rising corn-based ethanol use in the United States. Net farm income has doubled over the past five years, according to the U.S. Department of Agriculture’s Economic Research Service. Surging corn prices and rising production have been big factors. Farm balance sheets are strong, too. Net farm assets have risen by nearly $700 billion since 2009, according to the USDA, while net debt has gone up by just $40 billion. That is why the last few years have been so good to the top and bottom lines at Deere and its rivals in the farm equipment space, including Agco Corp ( AGCO.N ) and CNH Global NV CNH.N. Between 2009 and 2012, Deere’s farm machinery sales grew 60 percent and its diluted earnings per share jumped 270 percent. Deere continues to benefit from flush farmers. In the results released on Wednesday, Deere said its profit jumped nearly 30 percent, even though sales were only up 4 percent. The company, in a nutshell, was able to sock it to farmers price wise. But the company’s shares, which have underperformed the broader market all year long, fell as much as 3 percent following Wednesday’s report. The disconnect is all about expectations. The U.S. Department of Agriculture on Monday forecast a record corn harvest in 2013, which pushed the price down to $4.55 a bushel, near a three-year low. Now farmers – notoriously conservative – are widely expected to cut back on spending for equipment and acreage, which have also spiked in recent years. No one is expecting a catastrophic decline in the purchase of tractors, combines and other farm implements. Deere believes farmers’ cash receipts will fall 4 percent next year after a sharper 8 percent decline this year. Why would a 50 percent drop in corn prices result in a much more modest hit for farmers? Well, cash receipts are a function of both quantity and price. Corn was a lot more expensive last year, but the drought cut into yields. What’s more, farm income can include all kinds of non-crop revenue such as government payments, and crop and revenue insurance. Farmers also have lots of storage capacity, so they do not have to sell at current prices. They can store their grain instead. Add it up. Lower expected farm receipts + lower corn prices = double trouble for Deere shareholders. That is why many analysts who cover Deere, including Adam Fleck at Morningstar, expect the next few years to be tough for the company. “We’re a far cry from the farm crisis of the 1970s and 1980s,” said Fleck. “But the cold hard fact is farmers can always run a tractor one more year.” Lower corn and soybean prices, combined with the possibility of lower farmland values and higher interest rates, are coming together in a bad way for equipment manufacturers already facing several years of really difficult comparisons. Unlike farmers, Deere does not have a bin where it can store unsold farm equipment. It can’t stockpile tractors and combines and wait for the farmers to return. Deere, and perhaps its stockholders, might just have to tough this one out. (Additional reporting by Gavin Maguire.; Editing by David Greising and Andre Grenon) Continue reading
Upbeat Deere Farm Takings Number Puzzles Investors
14 th Aug 2013, by Agrimoney.com US farmers’ cash takings are to remain at an “excellent level” despite tumbling in crop values, Deere & Co said, remaining sanguine on European farm finances too – but acknowledging some setbacks to former Soviet Union customers. Deere & Co, at an investor meeting after announcing better-than-expected quarterly profits, faced a barrage of questions over forecasts that US farmers’ cash receipts will fall by only $10.1bn, or 2.6%, in 2014 to $379.7bn, remaining “historically high”. Deere forecasts for US 2014 cash receipts, and (change on year) 2014 receipts: $379.7bn, (-$10.1bn) Comprising – Crops: $198.3bn, (-$6.5bn) Livestock: $170.3bn, (-$1.4bn) Gov. payouts: $11.1bn, (-$0.2bn) 2013 receipts: $389.8bn 2012 receipts: $402.1bn 2011 receipts: $384.7bn Barclays analyst Andrew Kaplowitz said that while Deere was “usually pretty conservative” with forecasts, “if I talked to bears out there on ag, they would say that your forecast looks not conservative at all”. Larry de Maria at William Blair asked why Deere, while utilising larger crop estimates than the USDA, was using similar price forecasts, when a large crop might imply weaker values, with Bank of America, Credit Suisse and JP Morgan analysts also questioning the receipts forecast. The cash receipts number is particularly important for agricultural machinery investors, in being closely correlated with equipment demand. Susan Karlix, Deere’s manager of investor communications, saying that cash receipts “are expected to remain at an excellent level, helping keep farmers in a financially sound position”, termed them “the number one predictor of farm equipment sales”. Volume and price However, Marie Ziegler, Deere’s deputy financial officer, strongly defended the estimate, saying that “at this stage of the game this is our best forecast”, flagging the role of strong crops in making up for lower prices. “Remember that cash receipts is a function of quantity, which will be very good this year, in addition to price,” she said. “Cash receipts doesn’t discriminate between the commodity price and the quantity.” Tony Huegel, Deere investor relations director, said that the Deere estimates had been put together before the USDA’s numbers on Monday. And while $4.90 a bushel was historically “very strong pricing” for corn, even with prices in the low-$4s a bushel, “farmers are still making good money”. Arable vs dairy Deere was sanguine over the impact of lower crop prices on European Union agricultural finances too, saying that while “arable farm income is weakening”, it “remains at supportive levels”. Furthermore, “improving milk prices will support dairy farmers”, with prices in the UK hitting a record 30.77p per litre in June and, in the EU as a whole, butter values last month standing 57% higher than a year before, with skim milk powder up by more than 40%. However, Deere acknowledged some dent to prospects in the growing former Soviet Union market from tight credit and some crop setbacks. “Hot, dry weather has impacted crop prospects in southern Russia and Ukraine, and credit availability is also hurting equipment demand,” Ms Karlix said. With import duties also weighing on combine demand, Deere nudged down to “moderately lower”, from “down slightly”, its forecast for farm machinery industry demand in the former Soviet Union this year. Continue reading
