3 Troubling Charts Deere & Company Investors Need to See
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Transcript of 3 Troubling Charts Deere & Company Investors Need to See
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