Thursday, May 21, 2009

Some Reasons to Restrain Enthusiasm for John Deere's Results (DE; AGM)

Since we closed yesterday with a Black & Decker story I thought I'd continue the tool & implement theme with some thoughts on DE.
The stock was up a bit over 1% on a down day and in late aftermarket trade added a couple more pennies. The stock is up 80% from the early March low.
The headlines for DE have been surprisingly positive:

From Schaeffer's:
Deere & Company (DE) Corrals Pre-Earnings Call Speculators

From Bloomberg:
Deere Profit Tops Estimates on ‘Strong’ Farm Sales

From BloggingStocks:
Deere & Co (DE) Q2 earnings beat estimates

Even Joe Wiesenthal's dour view mentioned the stock action:
Deere's Outlook Sucks, But Of Course The Stock Is Up Anyway (DE)

There are a couple clouds on the horizon, from the Washington Post:

Federal Reserve: Agricultural credit tightened

WICHITA, Kan. -- More lenders are tightening their restrictions for agricultural loans in the Midwest at the same time that repayments on loans have dropped, The Federal Reserve Bank of Kansas City says.

The Federal Reserve reported Friday that its quarterly survey found that the percentage of lenders raising collateral requirements reached another record high in the Tenth Federal Reserve District. The rate of loan repayments also fell for the second straight quarter.

Turbulent agricultural conditions contributed to the tightened farm credit, the agency said.

"The thing to take away from all of this is ... farmers are positioning themselves to get through turbulent times," Federal Reserve economist Brian Briggeman said...

...The increase in bank referrals to government farm lending programs across the region was also driven by Oklahoma, where bankers were concerned about drought stress on the winter wheat crop.

Those early fears over the crop appeared well founded. The National Agricultural Statistics Service last week issued a winter wheat forecast saying Oklahoma's wheat crop was expected to come be 52 percent smaller than last year's crop because of drought and spring freeze damage.

"Things are definitely tough in Oklahoma right now on two fronts," Briggeman said.

Survey respondents reported farm income had slipped from the record highs of last year, especially in Oklahoma and Kansas. Livestock producers also were struggling with low cattle and hog prices amid waning global demand for meat...MORE

If you blinked last October, you missed the fact that Federal Agricultural Mortgage Corp.(Farmer MAC) was on the ropes, what with all the hullabaloo surrounding it's city cousins, Fannie and Freddie.

From the Financial Times, Sep. 25, 2008: Farmer Mac

You can’t choose your family. In the Mac and Mae household, overgrown delinquent mortgage financiers Freddie and Fannie are now in federal custody, deemed a danger to themselves and others. But lesser-known members of the public-private clan also face testing times. Farmer Mac, the toxic twins’ rural cousin, has seen its market value plummet from more than $350m last year to barely $50m. In fact, some 80 per cent of its value has vanished in the past two weeks....

From the WSJ, Oct. 2, 2008: Farmer Mac Rescued by Lenders

From MarketWatch, Nov. 26, 2008: Credit crunch hits Deere

The only outfit that I saw reading yesterday's news in a manner similar to yours truly was Forbes:

Harm On The Farm

Profits are up but the expected drop in farm income will likely dent equipment sales.

Tractor makers are hitching their hopes on the historically high profitability of farmers, but with U.S. farm net incomes expected to fall 20% in 2009, to $71.2 billion, from a year ago, farmers may not be eager to spend on farming equipment in the near-term.

While crop prices have been gaining strength recently, they're still well below last year's record-breaking levels, which will crop farm incomes in 2009, according to U.S. Department of Agriculture estimates. Agriculture, however, hasn't been hit as hard by the global financial crisis as other industries since the strong fundamentals that helped lifted crop prices last summer remain intact -- growing global populations are steadily improving their diets by eating more complex proteins, boosting grain demand for animal feed....MORE