Home Commodities Falling Commodity Prices Will Weigh on Deere Earnings

Falling Commodity Prices Will Weigh on Deere Earnings

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Investors could use some good news when

Deere

reports fiscal second-quarter earnings on Tuesday morning. That might be too much to expect.

Things look weak down on the farm with falling commodity prices—and new equipment purchases.

For Deere’s fiscal second quarter ended in April, Wall Street is looking for earnings per share of $7.86 from equipment sales of $13.2 billion, according to Bloomberg. In the fiscal second quarter of 2023, Deere reported EPS of $9.65 from equipment sales of $16.1 billion.

Sales are falling along with agricultural commodity prices. Benchmark corn prices are down about 22% over the past 12 months. Soybean prices are off about 13%. Lower prices for major crops mean less revenue for farmers and, in turn, less money for machinery purchases.

The Department of Agriculture projects 2024 net farm income of about $116 billion, down from $156 billion generated in 2023. That’s still a solid level. If projections hold it will be the fourth consecutive year above $100 billion. Net farm income has averaged about $105 billion over the past decade.

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Roughly 50% of the U.S. corn crop has been planted so far. Planting progress was a little further ahead in 2023, with 65% planted by the same point in May. Despite the delays, the Department of Agriculture projects a near-record corn crop.

Investors can expect a guidance update from Deere, along with an update on local weather and the crop outlook. In February, Deere said it expected to earn between $7.5 billion and $7.75 billion in its fiscal year 2024. That was down from November’s initial guidance of $7.75 billion to $8.5 billion.

Another trim might be coming.

AGCO

cut its full-year guidance when reporting first-quarter earnings on May 2. (AGCO reports on a calendar year basis.) The company expects EPS to be about $12, down from prior guidance of $12.15. AGCO expects North American tractor sales to fall 10% in 2024 compared with 2023. Sales in Europe and South America are expected to drop about 8% and 20%, respectively.

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AGCO shares dropped 1.3% in response to its earnings report.

Options markets imply Deere stock will move about 4%, up or down, following earnings. Deere shares have moved an average of about 4% following the past four quarterly reports. The stock dropped all four times.

Coming into Thursday trading, Deere stock was up about 4% year to date, trailing the


S&P 500

by some seven percentage points.

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Management hosts a conference call at 10 a.m. Eastern time to discuss results.

Write to Al Root at allen.root@dowjones.com

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