In recent days, there’s been increased selling of soybeans by Brazilian farmers amid the political uncertainty and decline in the value of the Brazilian currency, the real. Prior to that, farmers had generally been holding on to their crops looking for better pricing in the market.
That said, weakness in the Brazilian currency may not necessarily be a bad thing for Deere.
Huegel said there’s actually been some “good news” from the selling because it’s brought “a lot of cash into those farmers’ pockets again.”
Brazilian farmers generally sell their crops in U.S. dollars. Brazil is expected to have a record crop of soybeans and corn this year.
The wave of farmer selling in Brazil caused Chicago-traded soybean futures to fall 3 percent on Thursday, but they bounced back some on Friday. Also, corn futures were up just under 2 percent on Friday due primarily to U.S. weather concerns.
In stock trading Friday, Deere rose $8.23, or 7.3 percent, to $120.90. Volume was more than three times its average daily turnover, and the stock touched a 52-week high during the session of $122.24.
The rally in the shares followed Deere reporting better-than-expected EPS and sales in the fiscal second quarter ended April 30. Deere also lifted its full-year profit forecast and guidance on the flagship ag and turf segment.
For the quarter, Deere reported EPS of $2.49 in the fiscal second quarter, well above Thomson Reuters’ estimate of $1.68. That compared with EPS of $2.36 in the year-ago quarter.
Worldwide revenue in the quarter grew 5 percent to $8.2 billion, blowing past the forecast of $7.3 billion.
Deere sees net income of approximately $2 billion in the current fiscal year, ahead of its prior guidance for $1.5 billion.
The company also lifted its worldwide ag and turf sales forecast for the full fiscal year, indicating that growth of about 8 percent from a year ago would be driven largely by overseas demand.
Deere said the North American business remains challenging but indicated there are signs of improvement, particularly for the larger agricultural equipment it sells.
“It does appear the large ag market is stabilizing,” said Huegel. “We are starting to see some of them [farmers] stepping in a bit more into the market and beginning some replacement of their equipment.”
For the North America market, Deere sees ag and turf sales falling 5 percent this fiscal year, or the low end of its previous guidance range for 5 to 10 percent decline.
The U.S. farm economy has been struggling since 2012 due to low commodity prices for major ag crops such as corn and weaker farm incomes. That also has led to a glut of used farm machinery equipment in recent years, which has further pressured the market for new tractors and combines.
Elsewhere, the company said Asia market ag equipment sales are projected to be “flat to up slightly” this year, unchanged from its earlier forecast, while the European Union ag market is seen producing sales “flat to down 5 percent.”
Huegel said there’s “improved sentiment” in the EU region due to higher dairy and livestock profit margins, but added that weak farm incomes as well as geopolitical risks continue to weigh negatively on the market.
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source : CNBC