Quarterly earnings from Deere, the maker of farm equipment, are coming on Thursday morning. No one expects much.
For 2024, the USDA projects lower farm income for the second consecutive year. That means farmers have less money to spend on machinery.
Inventories of corn and other products are up, pushing crop prices lower and leaving farmers with less money to spend on tractors and combines. That means more equipment is sitting unsold on dealers’ lots.
For its fiscal third quarter that ended in July, Wall Street expects Deere to report earnings per share of $5.68 from equipment sales of $10.9 billion, according to FactSet. A year ago, those numbers were $10.20 and $14.3 billion, respectively.
Sales and earnings are falling along with farm incomes. The U.S. Department of Agriculture, or USDA, projects 2024 net farm income of about $116 billion, down from $156 billion in 2023 and $186 billion in 2022.
Farmers make money by growing things and selling them, so their lower income is partly a function of lower crop prices. Benchmark corn and soybean prices are down about 54% and 45%, respectively, from 2022 peaks.
And less money for farmers means fewer equipment purchases. Baird analyst Mig Dobre pointed out in a Tuesday report that inventories at U.S. dealers for agricultural equipment went up in the first half of 2024, despite weaker demand from farmers.
That points to a mismatch between production and sales. In the second half of the year, Dobre expects farm-equipment demand to be down some 15% year over year. The combination of all that means, eventually, production cuts from equipment makers.
Deere has scheduled a conference call to discuss its results at 10 a.m. Eastern time. Investors will look for details regarding any production cuts and what they might mean for profit margins.
Deere is expected to produce an operating profit margin of about 19% in fiscal year 2024, down less than one percentage point from 2023.
The weak backdrop has already shown up in the results of Deere’s peers. AGCO missed second-quarter earningsestimates and reduced its financial guidance in July. The stock dropped 5.7% in response.
CNH Industrial reduced its full-year guidance when it reported second-quarter numbers a day after AGCO. Shares managed a 4.7% gain. Coming into the earnings report, however, CNH stock was down about 17% in 2024, a little worse than AGCO. CNH also has a larger nonagricultural business than AGCO, making it less dependent on sales to farmers.
Through Wednesday trading CNH and AGCO shares are down about 21% and 29%, respectively, so far this year. Deere stock is down about 12%. The S&P 500 and Dow Jones Industrial Average are up about 14% and 6%, respectively.
Options markets imply Deere stock will move about 5%, up or down, following the earnings. Shares have moved about 5% after the past four quarterly reports, falling all four times.
Investors hope Deere stock can break its streak of weak post-earnings reactions. The ag market might not let that happen.
