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Deere & Co. Idea Proposal

Deere & Co. Idea Proposal
 

Research Question: Will the glut of used Deere equipment on dealer lots hamper sales of new Deere equipment now and into 2016?

Report Available: Nov. 11, 2015

 

Blueshift’s initial research shows that an oversupply of ag commodities and lackluster global ag demand have led to lower ag equipment sales at DE, and dealers have been reporting an oversupply of late-model used inventory. But the ag industry has always cycled, and some feel the bottom of this cycle will be less severe than previous ones.

 

Observations

  1. DE has been taking a beating from every direction: its ag equipment sales have been trending downward for nine quarters, and recently its construction line faced lower demanddue to the continued recession in the energy sector. DE now expects equipment sales to drop 21% for the year. DE’s sales declines were seen globally, however lower shipments of large equipment in the U.S. and Canada made up the largest percentage of this decline.
  2. glut of late-model used inventory at ag equipment dealers has been slowing sales of DE’s new equipment. One estimate showed used equipment supply at 30% above sales levels. 4WD tractor sales have sunk 41% through October, and combine sales are down 34%. Some equipment dealers think the ag market has not yet seen a bottom and that a return to increased profitability will come about in 2018. Other dealers reported that lenders are advising farmers to hold off on large equipment purchases.
  3. Smaller ag equipment sales have held steady. A farm blogger recently analyzed inventory at several dealershipsand found significantly fewer small combines versus large combines on the market. Some dealers reported that manufacturers, including DE, were pressuring them to load up on smaller equipment. To help spur sales, DE began offering free warranties on certified used tractors, zero percent financing, and performance monitoring software, which may have caused used tractor inventory to fall 10% in July. Farmers have also been observed buying more high-margin parts and repairing their current equipment.
  4. Ag equipment manufacturers tend to fare better than others during cycle bottoms. Non-ag cyclical industries will idle their equipment during cycle bottoms, whereas farmers continue to use the equipment even when margins are negative. Low interest rates, fuel prices, and the farmer debt levels will likely cause this trough in the ag cycle to be less severe for dealers and manufacturers than previous ag troughs.

 

How are used and new inventory levels at dealers? How are dealers feeling about 2016? To gain insight into DE and the ag equipment market, Blueshift will gather data and issue a market research report from independent sources in the following areas: DE dealers, Independent dealers, Competitor dealers, and Industry specialists.

 

Companies: Deere & Company (DE), Caterpillar (CAT), CNH Industrial (CNHI), AGCO Corporation (AGCO), Kubota Corp (TYO: 6326), Mahindra & Mahindra Limited (NSE: M&M)