Deere matches inventory to retail demand, despite softening ag sales

John Deere & Co. will produce new agriculture equipment inventory in line with retail demand in 2024, despite softening ag sales.  

“An essential element of our performance across the cycle is inventory management,” Director of Investor Relations Josh Beal said on the company’s earnings call today. “We structure our production schedules to maintain the appropriate level of field inventory for wherever we are in the cycle. Notably, that’s why we continue to produce the retail demand in the North American large ag market.”  

Deere dealers and customers are coming off “record highs these past few years,” Aaron Wetzel, vice president of production and precision ag production systems, said on the earnings call. “With lowering commodity prices and increasing interest rates, they’re beginning to shift to a more typical replacement pattern.”   

Dealers in the US are continuing to see good demand for products and are “proactively managing inventories as the underlying fundamentals of the market change,” Wetzel said.  

Inventory levels at the end of the quarter sat in line with “normal seasonal changes comparable with inventory to sales ratios from a year ago,” Beal said.   

By contrast, Deere is expecting to underproduce demand in Europe for the remainder of 2024 in response to “softening market conditions,” Beal said.  

Still, Deere expects the U.S. and Canada large ag industry to decline by 10% to 15% in fiscal 2024, and small ag and turf is expected to decline by 5%, according to the company’s earnings presentation.  

A U.S. Department of Agriculture report on farmer income earlier this month echoed a similar sentiment, forecasting a decline in net farmer income in both 2023 and 2024.  

Sales, by the numbers  

• Net sales of production and precision ag fell 6.7% YoY to $4.8 billion;  
• Net sales for small ag and turf declined 19.2% YoY to $2.4 billion, and;  
• Net sales for construction and forestry landed at $3.2 billion, essentially flat YoY, according to the earnings release.  

Lower dealer incentives increase financial services profits 

Lower dealer financing incentives and higher portfolio balances offset compressed financing spreads and higher provisions for credit losses at John Deere’s captive, John Deere Financial, leading to an increase in net income and revenue, according to an 8-K filed with the U.S. Securities and Exchange Commission today.  

• Financial services revenue jumped 38.7% YoY to $1.2 billion;  
• Net income rose 26.8% YoY to $175 million, and;  
• Ending portfolio balance increased 18% YoY to $55.6 billion.  

Registration is now open for Equipment Finance Connect, the nation’s only dealer-centric equipment lending and leasing event, which will take place May 5-7 in Nashville. Learn about the event and free dealer registration at EquipmentFinanceConnect.com.