Busy few days on markets for John Deere

Feb 19, 2016

Reflects downtown in global farm economy

By Farms.com Media Team

To what extent John Deere is a bellwether for the ag industry, recent news from the equity markets are something of a reflection of farming as we enter spring 2016.

The last few days were interesting ones for Deere & Co. (NYSE:DE), with increased investment from Warren Buffett, the release of much-anticipated fiscal Q1 results, and then the Moline, Illinois-based company cutting its outlook for the year.

Analysts commented that Deere was sending “warning shots to its industry,” but it appears to be a measured approach to the current realities of the marketplace.

ON TUESDAY: A regulatory filing showed that Buffett’s Berkshire Hathaway upped its interest in Deere by about 5.8 million shares, to a 7.2 stake in the company. Buffett is now Deere’s largest institutional shareholder with a value of approximately $2 billion.

Industry watchers explained Deere’s positive cash flow and reliable dividend yield made the share purchase attractive. Deere stock dropped some 14 per cent in 2015, but it had increased 7 per cent so far this year (up to Wednesday).

ON FRIDAY: Deere posted adjusted earnings of 70 cents per share, down nearly 38 per cent from the Q1 results from year-earlier. The company is expected to report revenue of $4.86 billion, a 13 per cent decline from the prior year.

Also on Friday, the company slashed its outlook for the year, saying it expects sales to fall about 10 per cent. Previous estimates were for a 7 per cent decline.
Earnings are now anticipated to be $1.3 billion, down from an earlier estimate of $1.4 billion.

Explained CEO Samuel Allen, “John Deere’s first-quarter results reflected the continuing impact of the downturn in the global farm economy as well as weakness in construction equipment sales.”

Farm equipment sales in Canada and the U.S. fell about 18 per cent in the quarter.

Video: Will the 2025 USDA December Crop Report Be a Market Mover/Surprise?

Historically, the USDA December crop report is a non-event or another dud report as the USDA reserves any final supply changes to the final report in January of the following year in this case 2026. But after the longest U.S. government shutdown in history at 43 days and no October crop report will they provide more data/surprise and make an exception?
Our China U.S. soybean purchase tracker is now at 26.6% or a total of 3.2 mmt but for traders it’s taking too long to unfold.
The final Stats Canada production report was bearish canola and wheat projection a record crop in both (it adds to the global glut of supplies) and bullish local corn and soybean prices in Ontario/Quebec thanks to a drought. It will not help the fund flow short-term, the USDA may need to offset it?
A U.S. Fed interest rate cut of another 25-basis point next Wednesday (probability 87.1%) could help fund flow and sentiment in stock and ag commodities into year end.
More inflows into Bitcoin this past week saw prices rebound back above 90,000 with support at 82,000 and resistance at 96,000.
A V-shaped bottom in cattle suggest the lows are in after Mexico reported another new world screwworm case. Lower weights, seasonal demand and higher U.S. beef select/choice values with a continued closure of the Mexican border to cattle will result in a resumption of higher cattle futures into yearend.
Australia is expected to produce its 3rd largest wheat crop ever at 36 mmt adding to the global glut of supplies.
Reports of ASF in hogs in Spain the largest pork exporter in Europe could see the U.S. win more pork export business long-term.
If the rains verify into next week of 3-5 inches for Brazil it would go a long way to fixing the dry regions from the last 2-months, but the European weather model has been wrong for the past 2-months!
Natural gas futures are surging to the 3rd price count as frigid hold temps set in.
CDN $ is also surging to end the week on a very resilient economy and better employment numbers suggesting no interest rate cuts next week.
Finally, the CFTC report showed funds were net buyers of soybeans but sellers of corn, canola and wheat. In real time the funds have gone back to selling as they take some profits.