Deere raised its earnings guidance above analyst estimates as sustained high crop prices keep farmers spending, resulting in a record windfall for the top maker of agricultural machinery. Its shares rose.
A year after Russia’s invasion of Ukraine sent wheat futures to a record, Deere is betting crops will stay pricey, enabling farmers to absorb cost inflation and overhaul aging fleets.
China’s reopening from the pandemic and a drought in Argentina are set to boost demand, with U.S. farmers remaining optimistic even as income moderates from record levels.
“Deere is looking forward to another strong year on the basis of positive fundamentals, low machine inventories, and a continuation of solid execution,” Chief Executive Officer John May said in Friday’s statement.
Deere’s shares rose 5.9% to $426.74 at 11:32 a.m. in New York, the best performer on the S&P 500 Index.
The increase in production for the quarter was “quite impressive and a clear sign that DE’s supply chain and operational bottlenecks have continued to improve,” Baird Equity Research said Friday in a note.
The agriculture industry has endured droughts in the U.S. and China as well as lingering pandemic supply-chain snarls exacerbated by the war in Ukraine.
Still, demand for Deere’s iconic green tractors remains buoyant, with crop disruptions also helping keep prices of corn, soy and wheat high – and farm economies strong.
The world’s biggest tractor maker expects net income for fiscal 2023 of between $8.75 billion and $9.25 billion, it said in a statement, above its forecast from November.
Business in the U.S. and Canada’s large agriculture and turf segment will be higher in 2023, though the smaller agriculture business will be down.
Smaller-scale farmers have struggled with rising costs of production as inflation hits fertilizer, seeds and pesticides.
High production in Brazil and a favorable foreign exchange rate kept profitability solid in the South American nation, executives said in Friday’s earnings call.
Large agriculture equipment demand is holding steady, though the country’s political transition and rising interest rates could cause smaller agricultural equipment demand to soften.
Industry sales in Asia, meanwhile, are forecast to be down moderately in 2023.
Deere forecasts production and precision agriculture sales to rise about 20% this year as farmers focus on wasting as little of their inputs as possible amid rising prices.
The construction and forestry division is benefiting from healthy demand as well, with order books full into the fourth quarter, executives said on the call.