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Investors Gush about Deere's Massive Earnings Surprise

PART:
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Part 5
Investors Gush about Deere's Massive Earnings Surprise PART 5 OF 7

What Broad Trends Are Affecting Demand for Deere Equipment?

Deere sales in the US and Canada region

Deere & Company (DE) expects demand for farm (MOO) equipment machinery in the US and Canada region to be subdued in the rest of the year as farm incomes continue to linger at levels below the long-term average and used equipment inventory levels continue to remain unfavorable. The company projected 2016 industry sales could decline between 15% and 20% with its large agriculture equipment segment (DBA) bearing the bulk of the onslaught of the current slump. A subdued environment in the US has a far greater impact on Deere compared to competitors such as AGCO (AGCO) and CNH Industrial (CNHI). Deere derives two-thirds of its revenues from the US and Canada region, whereas AGCO and CNHI make up 20%–30% of sales from the two countries.

What Broad Trends Are Affecting Demand for Deere Equipment?

What Broad Trends Are Affecting Demand for Deere Equipment?

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Deere & Company orders in South America

The company rated Brazil in particular and South America in general as the most likely candidates for growth in 2017. Currency depreciation has helped farmers in Argentina and Brazil realize a higher year-over-year gain in corn prices despite the decline of corn in dollar values. The company added some traction in its order books as well, as Brazil saw a modest improvement in inflation and the wider malaise plaguing the country in recent months. Overall 2016 industry sales of tractors and combines in South America are, however, still expected to be down by 15%–20% compared to the previous year.

Outlook in Asia

Deere anticipates that overall industry sales in China will decline this year due to the economic slowdown in the country. This is expected to be partially offset by higher sales in India where a normal monsoon after two years of drought conditions is expected to drive up farm incomes. Asia is a much smaller market for Deere compared to South America and the US.

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