REUTERS — Deere & Co. has cut its 2024 profit forecast as farmers remain hesitant about big-ticket equipment purchases due to high borrowing rates and falling crop prices, even as its first-quarter sales and profit topped Wall Street estimates.
With farmers reassessing expenses, particularly for compact tractors, Deere said it now expects net income for fiscal 2024 of US$7.5 to $7.75 billion. This is below its prior forecast of $7.75 to $8.25 billion and below analysts predictions of $7.93 billion, which already marked a decline from the previous quarter.
“That’s not particularly unusual for the first year of a market correction,” said Stephen Volkmann, senior machinery analyst at Jefferies.
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“The lower guidance that they put out is just a factor of that lower large agriculture outlook.”
Deere, a barometer of the global economy, said operating margins contracted due to lower sales for large agriculture equipment, which the company is expecting to decline 20 percent this year. Operating profit across its equipment divisions fell 13 percent in aggregate.
Executives have expressed caution about margin performance amid a weakening farm economy and said Deere intends to cut equipment production in 2024.
Rival CNH Industrial CNHI.N has also tempered investor expectations, even after posting better than expected profit for the fourth quarter, saying softening commodity prices will lead to a downturn in farm equipment demand.
Net farm income in the United States is set to fall 27 percent this year to $116 billion from its inflation-adjusted total in 2023, according to the U.S. Department of Agriculture.
U.S. grain and soybeans are at three-year lows and face stiff competition for export business from South America and the Black Sea region, translating to tighter balance sheets for growers and causing them to pull back on new equipment purchases.
Deere’s sales for production and precision agriculture equipment, its largest division, declined seven percent year-over-year in the fiscal first quarter. Revenue for equipment operations fell eight percent to $10.5 billion year over year.
