Tight global grain stocks should continue to sustain commodity prices for some time, supporting strong, pent-up demand for farm equipment, executives with Deere and Co. said Friday.
Deere shares fell after the company lowered its earnings estimate for fiscal 2022. But the company said net sales of production and precision agriculture equipment are projected to be 25% to 30% higher for the year over FY21. Net sales for that division were up 43% in the third quarter over the same period in FY21.
High-horsepower row crop tractors have been among the company’s top sellers, and Deere expects to end the year with close to its highest market share on record. The company expects to increase production of farm equipment in FY23.
The company expects farmers to stay profitable into 2023.
“Overall, ag fundamentals remain really strong,” Cory Reed, president of Deere’s worldwide agriculture and turf division, said on the company’s quarterly earnings call. “Corn and soy prices have declined from a few months ago, but so have inputs like fertilizer and others.”
He said it’s likely to take a couple of growing seasons for global grain stocks to get back to normal levels.
The story is similar in South America, where the main planting season is starting, as it is in the United States and Canada, according to Reed.
South American farmers are “likely going to plant the largest crop in the history of the region. We're seeing our shares grow and we're seeing our precision ag technology rates grow,” he said.
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Deere sales have been hampered by the same supply chain challenges that have dogged carmakers; partially completed equipment has had to sit idle waiting for delivery of parts, a problem that has affected Deere in Europe as well as North America.
Demand for equipment in Europe “continues to outpace what the industry can supply,” Reed said. “It's the same story of partially completed machines waiting for parts or even in some cases, completed machines just waiting on an outbound truck."
Deere reported net income of $1.88 billion for the latest quarter, an increase of 13% over the third quarter of FY21. Deere now projects its net income for FY22 at $7 billion to $7.2 billion. The previous outlook was for earnings of $7 billion to $7.4 billion.
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