3 Troubling Charts Deere & Company Investors Need To See

Farmer confidence: Headed lower

DTN/The Progressive Farmer Agriculture Confidence Index

gauges farmers' level of optimism toward current as well as future (next 12 months) expected business conditions

factors in three key aspects of farming: input prices, net farm income, and farmer household income

indicates optimism for values above 100, and pessimism for values below 100

August Ag Confidence Index Results

Source: DTN/ The Progressive Farmer

Farmers’ confidence about current business situation is at its lowest since 2010.

Expectations for the future have improved, but remain in the pessimistic range.

Key takeaways

How that hurts Deere

Low farmer

confidence

Deferred farm-

equipment

purchases

Lower demand

for Deere’s

high-margin

large ag-equipme

nt

So why are farmers pessimistic? The next chart

answers that.

Farm purchases depend on farmers’ earnings, measured by farm income.Net farm income = income from a farm - all cash and non-cash expenses related to operating the farm.The higher the expected farm income, the more optimistic farmers will be.

The key equation

USDA’s* latest farm income report

*United States Department of Agriculture. Chart source: USDA

2015 net farm income projected to be $58.3 billion – lowest since 2006 and down 53% from the record highs of 2013.

Key takeaway

How that hurts Deere

Less income

at farmers’ disposal

Deferred farm-equipm

ent purchas

es

Lower demand

for Deere’s equipm

ent

Why is farm income under such huge pressure?

Chart #3 has an answer

Farm cash receipts = crop receipts (revenue earned from crop sales) + government payments (in the form of subsidies).

Farm cash receipts are an integral part of farm income, and directly proportional to crop prices. As crop prices rise, so do receipts.

Crop prices hold the key

In a downtrend

Data source: USDA. Chart source: Deere Q3 2015 earnings presentation

The USDA projects crop receipts for 2015 to decline 6.2%. Government payments are projected to increase 16%, but not enough to offset the decline in crop receipts as government payment is only a small component of farm income.

Key takeaways

How that hurts Deere

Lower commo

dity prices

Lower crop

receipts and farm

income

Lower demand for farm equipm

ent

This Could Be The Next Billion-Dollar iSecret