Improving Farm Economy Drives Up Deere Earnings

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CHICAGO: Deere & Co on Wednesday reported a rise in quarterly earnings, defying Wall Street estimates for a decline, as higher crop prices, government subsidy payments and replacement demand for an aging fleet lifted demand for farm machines.

The Moline, Illinois-based company reported earnings of $2.39 per share for the fourth quarter to Nov. 1, versus $2.27 per share last year. Analysts surveyed by Refinitiv on average expected earnings to fall 36% year-on-year to $1.45 per share.

Deere, known for its John Deere brand farm machinery, said it expects net income of about $3.6 billion-$4.0 billion in the fiscal year 2021, above the $3.3 billion estimated by analysts surveyed by Refinitiv and the $2.75 billion reported for 2020.

“Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm equipment,” said Chief Executive John May.

Deere’s shares have outperformed the S&P 500 to gain 31% since its last earnings report in late August, buoyed by a turnaround in the farm economy. The company’s shares were up 2.9% at $269.11 in pre-market trade.

Tightening grain supplies and strong demand from China have increased prices for soybeans and corn in the United States by a third since early August. Wheat prices are up by 22% on the back of an increase in baking.

The rally is a sharp reversal of the fortunes for the U.S. agricultural economy after four years of global surplus grain stocks that have kept prices low.

Meanwhile federal payments to farmers are projected to hit a record $51.2 billion this year, contributing to the fastest growth in U.S. farm income in at least nine years. Improving financial conditions have lifted farmer sentiment to a record high.

A growing need for farmers to replace their aging tractors and combines is also helping agriculture equipment demand.

Deere expects worldwide sales of agriculture and turf equipment to increase by 10% to 15% in 2021.

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