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Things not so hot with John Deere

Things not so hot with John Deere

John Deere posted a trading loss as sales have fallen 14% in 2008-9, and the company expects a further 4% decline in 2010. Is there more behind the figures which is not being revealed?
The buying spree of farm equipment over recent years has cooled in 2009 as commodity prices have retreated and tight credit conditions have made financing more difficult. John Deere sales of farm equipment fell 14% over 2008. The recession has equally affected Deere's sales of construction equipment which dropped a massive 45%.
Overall revenue dropped 28% in the last quarter ending Oct 31 to $5.33bn, with a reported loss for the quarter of $223m.
All companies like to attribute poor figures on global events that are out of their control, but often there's a story underneath that provides a different explanation. Has John Deere hit a patch of bad luck, with products which don't satisfy the market? Farm machinery goes through phases of popularity, and the green tractor has been the one of choice on many farms across the world. They gained a real reputation of fantastic reliability and performance in the field. But their recent models, particularly the 20 series, seem to be creating some adverse comment. At the same time there are others which are gaining reputation.

Is farming entering recession?
The relationship between farming costs and the price of grain and other commodities provides little margin for the farmer in the middle. Wheat at £100, milk at 19p, OSR £230 doesn't square with tractors at £100k plus, trailers at £18k and combines at £250k and much more. There's little wonder that machinery sales stagnate.

The banking crisis has forced machinery dealers to reduce borrowings and this should mean discounts, but there's little evidence of this as yet. Dealers favour holding out for the price they have in mind, both on new and used kit, even if their stocks of both are considerable. When the price of used machinery was slowly increasing so the yard full of machinery was an appreciating asset.

Many farmers are holding off machinery changes and are waiting for bargains to appear on the fore-court and in the auction house, and it seems likely they won't be disappointed. Machinery companies ramped up production in response to the great grain price spike of 2008. Their products have become increasingly complex, which has maintained a high level of warranty work. Farmers have become increasingly concerned about the longevity of this sophisticated farm equipment, and there's a move to get back to simpler technology - within the tractor sector in particular.