USDA Forecasts Lower Crop Receipts: Will DE Manage the Pressure?

Deere & Company DE continues to face persisting challenges in its equipment operations, experiencing nine consecutive quarters of volume declines. The Agricultural & Turf segment has been the hardest hit, reflecting weakness in farmer demand over this period. This slump is largely due to commodity prices, elevated input costs and high interest rates, which have dampened overall sentiment in the farming community.

Per the latest projections from the U.S. Department of Agriculture, net farm income is set to reach $179.8 billion in 2025. (slightly below earlier estimates of $180.1 billion). The figure suggests a 40.7% increase from the prior year. In inflation-adjusted terms, net farm income is forecast to increase 37.2%.
However, much of this growth reflects a $30.4 billion increase in direct government farm payments to $40.5 billion for 2025. 

Meanwhile, crop receipts are anticipated to decline 2.5% (previous expectation was 2.3%) from the prior year due to lower revenues for soybeans, corn and wheat. This will be offset by an 11.2% increase in animal and animal products receipts. Production expenses are also expected to move up 2.6%, leading to more pressure on farmers.

Overall, these projections suggest that order activity for agricultural equipment will remain impacted this year.  Deere anticipates a challenging industry outlook for fiscal 2025, particularly in the large agriculture equipment market in the United States and Canada, which is expected to decline 30%. The small agriculture and turf equipment market in the United States and Canada is projected to decline 10%. 

Meanwhile, European agricultural markets are expected to remain flat to decline approximately 5%, while South American agricultural markets are forecast to remain flat. The Asia market is expected to be flat to up 5%. 

The company’s guidance suggests a volume decline in the range of 15-20% for the Production & Precision AG segment and an 11% decline for the Small AG & Turf segment. 

Our model projects a 19.2% drop in volumes in the Production & Precision AG segment for fiscal 2025 and a 11.1% decline in the Small AG & Turf segment’s volumes. This is expected to lead to a 16.4% decline in volumes in the Agricultural & Turf segment.

Industry peers like AGCO Corporation AGCO and CNH Industrial N.V. CNH are also struggling. AGCO has seen six straight quarters of negative organic growth due to weak volumes. AGCO expects this trend to continue through the year and be a drag on 2025 sales and operating margins. Our model projects a 11.6% decline in organic growth in 2025 for AGCO. 

In North America, AGCO expects sales volumes of large agricultural equipment to be down 25-30% and small agricultural equipment to be down 5%. In Western Europe, sales will be down 5-10%, and Brazil sales will be flat to up 5%.  

CNH Industrial has also seen its volumes declining for eight straight quarters in the Agriculture segment. CNH Industrial expects the Agriculture segment’s net sales to be down between 12% and 20% year over year

DE’s Price Performance, Valuation & Estimates

DE shares have gained 11.4% so far this year compared with the industry’s 10.9% growth.

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Deere is currently trading at a forward 12-month price/earnings (P/E) ratio of 23.22X compared with the industry average of 21.30X.

The Zacks Consensus Estimate for DE’s fiscal 2025 earnings indicates a year-over-year decline of 27.5%. The consensus mark for revenues implies a drop of 14.5% for the year. The earnings estimate for fiscal 2026 indicates 12% growth, with revenues rising 6%.

The earnings estimate for Deere for both fiscal 2025 and fiscal 2026 has moved down over the past 60 days, as shown in the chart below. 

Deere stock currently carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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