Deere sees equipment sales falling further as farm incomes drop

Reuters — Deere and Co. said it expected equipment sales to fall further as lower grain prices discourage farmers from buying tractors, harvesters and other machinery.

Shares of the world’s largest farm equipment maker fell as much as four per cent in premarket trading Wednesday.

Deere’s sales have been hit as bumper corn harvests drive down prices, leaving farmers with less cash to spend on equipment. Corn prices have fallen about 11 per cent this year so far, on top of a decline of nearly 40 per cent last year.

“The slowdown has been most pronounced in the sale of large farm machinery, including many of our most profitable models,” CEO Samuel Allen said in a statement Wednesday.

Deere gets more than two-thirds of its revenue from farm and turf machinery.

The U.S. Department of Agriculture said Tuesday that falling grain prices and rising costs would drag down U.S. farm sector profits in 2014 to their lowest since 2010.

Moline, Ill.-based Deere cut its forecast for corn price next year to about $3.45 per bushel from $4.10 (all figures US$). It also reduced its estimates for wheat, soybean and cotton prices.

Sales of farm machinery in North America are expected to fall 25-30 per cent industry-wide next year, Deere said.

The company has cut jobs and scaled back production of farm equipment to match demand. Deere said in August that it would lay off more than 1,000 employees at five U.S. plants.

“We believe Deere will be aggressive in cutting production — the company plans to cut inventory even against this weak sales forecast — which suggests that (the current quarter) could be a particularly weak quarter,” Jefferies and Co. analyst Stephen Volkmann wrote in a note.

Deere, which also makes construction equipment, said it expected overall machinery sales to fall about 21 per cent in the first quarter ending Jan. 31.

Net income attributable to the company fell to $649.2 million, or $1.83 per share, in its fourth quarter ended Oct. 31 from $806.8 million, or $2.11 per share, a year earlier.

Revenue fell five per cent to $8.97 billion.

— Sagarika Jaisinghani reports on the U.S. manufacturing sector for Reuters from Bangalore, India.


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