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Deere Raises Forecast Amid Signals of Farm Recovery
USAgNet - 02/19/2018

Deere & Co., the world's largest farm machine maker, raised its full-year sales forecast, and there's reason to believe that good news will keep coming. After a prolonged slump for crop prices that slashed farmer income, fundamentals are starting to rebound, according to Farha Aslam, an analyst at Stephens Inc.

Bloomberg reports that an index measuring sentiment in rural agricultural communities rose to the highest since 2014 in February, while a Federal Reserve Bank of Kansas City report showed farmland prices are starting to stabilize.

Green shoots for the farm economy can only help Deere, which is already on an upswing as corporate farmers begin to replace older equipment. Cuts to inventory and output during the downturn are now adding to the company's positive outlook as it produces more of its iconic green-and-yellow machines to meet demand.

A turnaround in the farm economy "would kick-start demand to an even greater extent," said Matt Arnold, an analyst with Edward Jones & Co. in St. Louis. Sentiment in agriculture "can change on a dime. A weather event could prompt an upswing in grain prices and income, and it's been a long time since we've seen one of those."

Deere said Friday in a statement that equipment sales are projected to increase by about 29 percent in the financial year that lasts through October, and by as much as 40 percent in its fiscal second quarter.

It also said net revenues will increase by about 25 percent in fiscal 2018, up from a prior view of about 22 percent. It forecast full-year net income, excluding the impact of tax-related adjustments, of $2.85 billion. That exceeds the average estimate of 18 analysts surveyed by Bloomberg for $2.7 billion.

The company reported a surprise first-quarter loss of $535 million, which included the writedown of net deferred tax assets following U.S. taxation reform.

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