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. Taylor Scott International