Deere upbeat over US farm economy

Deere & Co offered an optimistic forecast for the US farm economy on Friday amid an escalating tariff war with China and other big trade partners as its quarterly profit missed estimates on higher raw material and freight costs.

Shares of the world’s largest manufacturer of tractors and harvesting equipment erased early losses to turn higher, trading up 2.6% at $140.98.

The trade showdown has depressed US farm commodity prices as China and other trading partners target agricultural exports through retaliatory tariffs, clouding the outlook for equipment demand.

Deere said the trade disputes had not hit demand for replacing ageing equipment as farmers are still investing in technologies to increase operation efficiency.

It expects US farm cash receipts in 2019 to be higher than in 2018 as rising demand for crops such as maize, wheat and cotton offset soft demand for soya beans.

“The situation right now is dynamic for the farmers and this

2.6% is the rise in shares of the manufacturer, trading at $140.98, after early losses

$3.1bn

is the forecast net income for 2018, after $2.2bn in 2017

can change,” CFO Rajesh Kalathur said.

Deere said early orders for new farm machinery are up in 2018 despite uncertainty over tariffs. “This essentially confirms that the replacement cycle is alive and well, supporting growth into 2019,” said Mircea Dobre, senior analyst at Baird Equity Research.

Deere’s comments are in sharp contrast to industry surveys that show the trade war and depressed commodity prices are hurting farmer sentiment. The Purdue University/CME Group Ag Economy Barometer recorded the largest one-month decline in producer sentiment since data was first collected in October 2015.

Yet Deere, which finances farmer equipment purchases, further cut the estimate for credit loss provisions for 2018 and expects it to be well below the 10-year average.

It did not change its full-year earnings forecast, banking on replacement demand for agricultural equipment. It is “confident” it will deliver adjusted net income of $3.1bn in the fiscal 2018, it said, versus $2.2bn in fiscal 2017.