CHICAGO: Deere & Co on Wednesday reported a rise in quarterly earnings, defying Wall Street estimates, as higher crop prices, government subsidy payments and replacement demand lifted sales of farm machines.
The maker of John Deere and world's largest farm equipment producer forecast net income of US$3.6 billion-US$4.0 billion for fiscal 2021 as it expects to benefit from improving conditions in the farm economy and stabilization in the construction and forestry markets.
The forecast is higher than a US$3.3 billion estimate from analysts surveyed by Refinitiv and the US$2.75 billion reported for 2020.
"Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm equipment," said CEO John May.
Deere's shares have outperformed the S&P 500 and gained 31per cent since its last earnings report in late August buoyed by a turnaround in the farm economy. They were up 2.4per cent at US$267.90 in pre-market trade.
Industry sales of agricultural equipment in the United States and Canada - Deere's biggest combined market - are forecast to grow by 5per cent to 10per cent next year. Sales are also projected to increase in Europe and South America.
Tightening grain supplies and strong demand from China have increased prices for soybeans and corn in the United States by a third since early August. Wheat prices are up by 22per cent on the back of an increase in baking.
The rally marks a sharp reversal in fortunes for the U.S. agricultural economy after four years of global surplus grain stocks that have kept prices low.
Meanwhile, federal payments to farmers are projected to hit a record US$51.2 billion this year, contributing to the fastest growth in U.S. farm income in at least nine years. Improving financial conditions have lifted farmer sentiment to a record high.
A growing need for farmers to replace aging tractors and combines is also helping demand.
Deere's fourth-quarter profit came in at US$2.39 per share, up 5per cent year on year. Analysts had expected a fall of 36per cent, a survey of analysts by Refinitiv showed.
(Reporting by Rajesh Kumar Singh; editing by Jan Harvey and Jason Neely)