A decline in farm incomes, high interest rates and an uncertain economy have compelled farmers to reassess large expenses on agricultural machinery and forced dealers to limit inventory restocking.

U.S. farm income is expected to fall for a second consecutive year in 2024, as farmers grapple with corn and soybean prices hovering near four-year lows.

“Amid significant market challenges this year, we proactively adjusted our business operations to better align with the current environment,” CEO John May said.

For 2025, Deere expects net sales to fall about 10 per cent to 15 per cent across all its machinery segments.

A slump in equipment volumes has also forced smaller rivals CNH Industrial and AGCO to trim their profit expectations for the rest of 2024.

The world’s largest farm-equipment maker expects profit for fiscal year 2025 in the range of $5 billion to $5.5 billion (C$7 billion to $7.7 billion) , compared with analysts’ average estimate of $5.93 billion (C$8.26 billion), according to data compiled by LSEG.

Concerns around supply chains and a surge in demand led dealers to significantly increase their inventories last year, boosting sales for Deere.

However, amid the recent demand slowdown, skeptical dealers have slowed inventory restocking.

“As expected, farmers are pulling back on equipment purchases, given the growing P&L pressure, and that is reflected in Deere’s results and guidance for 2025,” said Chad Dillard, senior analyst at Bernstein.

“It is encouraging Deere is managing channel inventories and defending price.”

The company reported a profit of $4.55 per share (C$6.34) for the fourth quarter ended Oct. 27, above Wall Street expectations of $3.87 ($5.39), aided by lower production expenses and cost controls, sending its shares up 1.8 per cent before the bell.

Net sales from equipment operations fell nearly 33 per cent to $9.28 billion (C$12.93 billion), missing analysts’ estimate of $9.34 billion (C$13.01 billion).

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Shares of the world’s largest farm equipment maker rose six per cent, lifting peer Caterpillar, which also reported a profit beat last week amid moderating demand, nearly three per cent.

Higher prices, implemented two years ago following supply chain complications and a surge in demand for industrial and agricultural equipment, have helped U.S. machinery makers to shield their profits from an industry-wide slump.

“Deere’s pricing power was reflected well in Q3 as price helped to dampen impacts from contracting volumes,” CFRA Research analyst Jonathan Sakraida said.

Deere maintained its 2024 net income at about US $7 billion, even as sales of new machines have shrunk amid a decline in crop prices and high borrowing costs, which have also forced dealers to limit inventory restocking.

U.S. farm incomes are forecast to plunge in 2024 due to a sharp decline in commodity prices, heightened production costs and shrinking government support.

“By keeping inventories in check, we have been able to maintain solid price realization,” said Deere’s director of investor relations, Josh Beal.

Deere also said it expects an improved favorable price realization in its agriculture segments in 2024 compared to its previous targets.

For the third-quarter, Deere reported a net income of $6.29 per share, compared with LSEG estimate of $5.63, while net sales and revenue decreased 17 per cent to $13.15 billion.

“We’ve prudently and proactively adjusted production schedules in our large agriculture business at a faster pace than ever before, in order to reduce field inventory in our end markets,” CEO John C. May said.

Deere said in June it would cut some production jobs and reduce salaried employees to keep a tight lid on costs.

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Shares of the world’s largest farm equipment maker were down 2.6 per cent in premarket trading.

With farmers reassessing expenses, particularly for compact tractors, Deere said it now expects net income for fiscal 2024 of $7.50 billion to $7.75 billion. This is below its prior forecast of $7.75 billion to $8.25 billion and below analysts predictions of $7.93 billion, which already marked a decline from the prior quarter.

“That’s not particularly unusual for the first year of a market correction,” said Stephen Volkmann, senior machinery analyst at Jefferies. “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 per cent this year. Operating profit across its equipment divisions fell 13 per cent 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 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 U.S. is set to fall 27 per cent this year to $116 billion, from its inflation-adjusted total in 2023, according to the U.S. Department of Agriculture. U.S. grains 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, it’s largest division, declined seven per cent year-over-year in the fiscal first quarter. Revenue for equipment operations fell eight per cent to $10.5 billion year over year, but topped consensus forecasts of $10.3 billion.

Net income fell to $1.75 billion, or $6.23 per share, for the first quarter, beating analysts estimates of $5.21 per share, according to LSEG data.

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