Deere & Co. is expecting weaker sales next year as high interest rates and a tough agricultural market keeps farmers from upgrading tractors and equipment.
Large ag equipment industry sales in the U.S. and Canada are forecasted to decline 10% to 15% in fiscal year 2024, following three years of record demand, executives said on a fourth quarter earnings call last week. Quarterly sales dipped 1% to $15.41 billion, due in part to lower shipment volumes and softer demand as parts of the world deal with economic uncertainty.
Deere reported net income of $2.37 billion in the fourth quarter, allowing the agricultural machinery giant to post one of its most profitable years. Company shares fell as much as 7% on news of a softer outlook, but have recovered to around $362 as of Monday morning.
North American customers remain profitable and inventory rates for large agricultural equipment are strong heading into 2024, Brent Norwood, director of investor relations at Deere, said in an earnings call Wednesday. However, executives are tempering expectations as lower commodity prices and higher interest rates weigh on demand for agricultural machinery and equipment.
Based on early sales and pre-orders for the U.S. and Canada, Norwood said combine volumes are expected to be down double-digits, while tractors are already sold out through the end of the third quarter.
In 2024, Deere is expecting its production and precision agriculture segment to decline as much as 20% in terms of sales, driven by softer demand in North America, Europe and Brazil. Sales could fall as much as 15% in the company’s small agriculture and turf segment and 10% in construction and forestry.
After years of disruptions and market challenges, Deere saw a return to normalcy in terms of operations in the fourth quarter. Factories resumed seasonal shipping patterns and production rates, allowing the company to deliver products to customers on time and at expected costs, Norwood said.
Efforts to mitigate supply chain disruptions and subsequent moves to keep stock balanced will allow the company to better weather a slowdown in demand next year.
"The production constraints of the last few years, combined with better inventory discipline from Deere, positions the company really well as demand pivots in 2024," Norwood said.