John Deere. Committed to Those Linked to the Land. Market Fundamentals. Deere & Company August/September 2014

Transcription

1 John Deere Committed to Those Linked to the Land Market Fundamentals Deere & Company August/September 2014

2 Safe Harbor Statement & Disclosures This presentation includes forward-looking comments subject to important risks and uncertainties. It may also contain financial measures that are not in conformance with accounting principles generally accepted in the United States of America (GAAP). Refer to Deere s reports filed on Forms 8-K (current), 10-Q (quarterly), and 10-K (annual) for information on factors that could cause actual results to differ materially from information in this presentation and for information reconciling financial measures to GAAP. Guidance noted in the following slides was effective as of the company s most recent earnings release and conference call (13 August 2014). Nothing in this presentation should be construed as reaffirming or disaffirming such guidance. This presentation is not an offer to sell or a solicitation of offers to buy any of Deere s securities. 2

3 Table of Contents Slide # Ag Fundamentals U.S. 4 Construction & Forestry Fundamentals U.S. 12 Other Regions 15 3

4 Ag Fundamentals United States

5 U.S. Farm Cash Receipts Projected total cash receipts moderate at historically high levels $450 $400 $350 $300 $ Billions $250 $200 $150 $100 $50 $ F 2014F 2015F Government Payments Total Cash Receipts Source: : USDA 11 February F 2015F: Deere & Company Forecast as of 13 August

6 U.S. Farm Balance Sheet Strong $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 30% 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% F 2014F $ Billions Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%) Source: : USDA 11 February F 2014F: Deere & Company Forecast as of 13 August

7 Corn, Soybeans, Wheat and Cotton Prices Nearby Futures: 5 August August 2014 Corn Soybeans Dollars Per Bushel /5/09 8/5/10 8/5/11 8/5/12 8/5/13 8/5/14 Dollars per Bushel /5/09 8/5/10 8/5/11 8/5/12 8/5/13 8/5/14 Dollars per Bushel Wheat /5/09 8/5/10 8/5/11 8/5/12 8/5/13 8/5/14 Dollars per Pound Cotton /5/09 8/5/10 8/5/11 8/5/12 8/5/13 8/5/14 Source: Chicago Board of Trade Corn, Soybeans & Wheat; Intercontinental Exchange Cotton 7

8 Uses of U.S. Corn Crop , % Bushels (millions) 20,000 15,000 10,000 5, % 38.0% 35.0% 32.0% 29.0% 26.0% 23.0% % Exports Food, Seed, & Industrial (Less Ethanol) Ethanol & By-Products for fuel Feed & residual Ethanol & By-Products for Fuel as % of Total Corn Usage Source: USDA Agricultural Projections to 2023, February

9 World Farm Fundamentals Global Stocks-to-Use Ratios 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Cotton Wheat Corn Soybeans P Source: USDA 12 August

10 Agricultural Growth Energy U.S. Ethanol 6,000 U.S. Corn Used In Ethanol 5,000 4,000 Bushels (millions) 3,000 2,000 1, /00 01/02 03/04 05/06 07/08 09/10 11/12 13/14F 15/16F Source: Informa August

11 Daily Ethanol Margin Per Bushel Corn Grind Based on Nearby Futures Prices (Excl ITDA*) $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 8/5/ /5/2010 2/5/2011 5/5/2011 8/5/ /5/2011 2/5/2012 5/5/2012 8/5/ /5/2012 2/5/2013 5/5/2013 8/5/ /5/2013 2/5/2014 5/5/2014 8/5/2014 *Interest, Tax, Depreciation and Amortization (ITDA) totals ~$0.50 and is often disregarded in margin calculations because it does not influence short term production decisions Source: Informa August

12 Construction & Forestry Fundamentals United States

13 U.S. Housing Starts Housing Starts (Millions of Units) Multi-Family Housing Starts Single-Family Housing Starts F Source: : U.S. Census Bureau July F 2014F: Deere & Company Forecast as of 13 August

14 U.S. Construction Spending Billions, 2005 Chained $ s U.S. Construction Spending (Billions, 2005 Chained $ s) 2,300 70% 2,200 60% 2,100 50% 2,000 40% 1,900 30% 1,800 20% 1,700 10% 1,600 0% 1,500-10% 1,400-20% 1,300-30% 1,200-40% 1,100-50% 1,000-60% % % % % % % Residential Investment in Structures % Nonresidential Investment in Structures % Government Investment in Structures 100 Government Infrastructure Investment -150% 0-160% F 2014F % Total Construction Spend Source: : U.S. Bureau of Economic Analysis July F 2014F: Deere & Company Forecast as of 13 August

15 Other Regions

16 EU 28 Macroeconomic Data F GDP Growth (%) -0.3% 0.2% 1.6% Inflation (%) 2.4% 1.4% 0.9% Unemployment (%) 10.6% 11.1% 10.6% GDP Composition 25% 2% 73% Agriculture Industry Services Major Economies GDP Growth (%) Germany UK France Italy Spain F Source: The World Factbook, 2013 est. Labor Composition 23% 5% 72% Agriculture Industry Services Source: IHS Global Insight July 2014 Source: The World Factbook, 2012 est. 16

17 EU 28 Ag Economic Data Utilized agricultural area ~ 190 million hectares Arable land ~ 110 million hectares Growth potential for Ag equipment industry in Central & Eastern Europe Ongoing farm & Ag land consolidation and yield improvements Average farm size ~ 14 hectares Number of farms ~ 12 million Source: FAO, Eurostat Agricultural Census 2010 Deere & Company Forecast as of 13 August 2014 $ Billions $120 $100 $80 $60 $40 $20 $0 Crop Value of Production F Crops included: Wheat, Barley, Corn, Rapeseed, Sunflower Seed, Soybeans, Sugar Beet, Cotton and Rice Source: IHS Global Insight as of July 2014 Share of the World Market Production Net Exports Total Grains 15% 6% Wheat 20% 15% Barley 42% 26% Pork Meat 21% 29% Cow Milk 30% 18% Source: USDA, July 2014; average (Total Grains excl. Rice, Cow Milk: Net Exports of Dry Whole Milk Powder) 17

18 Economic Update EU 28 Fiscal 2014 Signs of gradual economic stabilization and cyclical recovery, but headwinds exist Modest but vulnerable GDP growth expected Crop income prospects soften on lower grain prices Sound livestock margins Beef prices remain solid Strong milk prices will support dairy farmers Feed costs have eased Deere & Company Forecast as of 13 August

19 EU 28 Government Support of Agriculture Common Agricultural Policy budget frozen at nominal levels (-14% in real terms) Portion of direct payments (30%) tied to environmentally-friendly farming practices Limited effects of direct payments redistribution in favor of new member states (Central & Eastern EU) In nominal terms & over the full time period, Pillar I ~ constant but bigger cuts in Pillar II EUR bn (nominal prices) Pillar I (Direct Payments + Market Expenditures) Pillar II (Rural Development) Source: EU Commission, Agra Europe 19

20 Brazil Macroeconomic Data GDP Composition F Interest rate (%) 8.5% 8.2% 10.8% CPI Inflation (%) 5.4% 6.2% 6.5% Unemployment (%) 5.5% 5.4% 5.3% 25% 6% 69% GDP Growth (%) F Agriculture Industry Services Source: Brazilian Institute of Geography and Statistics (IBGE), 2013 Labor Composition 23% 17% 60% Agriculture Industry Services Source: Brazilian Institute of Geography and Statistics (IBGE), 2012 Source: IHS Global Insight July

21 Brazil Ag Economic Data Gross Value of Agricultural Production Agricultural area ~ 275 million hectares 1 Planted area ~ 72 million hectares 2 ~ 17 million hectares brought into production from (~ half from pasture) Billions of Brazilian Real ~ 24 million hectares will be brought into production in next decade 3 ~ 4.5% CAGR in industry equipment sales through the end of the decade 3 Average farm size ~ 64 hectares Number of farms ~ 5 million 1 Includes pasture, excludes double crop 2 Includes double crop 3 Deere & Company Forecast as of 13 August 2014 Source: FAO, Conab, Brazilian Institute of Geography and Statistics (IBGE) F Crops included: Soybean, Corn, Rice, Wheat, Cotton, Sugarcane, Coffee, Orange, and key Fruits & Vegetables. Source: Actual: MAPA (Brazilian Ministry of Agriculture), June : Deere & Company Forecast as of 13 August 2014 Share of the World Market Production Net Exports Soybean 8% 19% Corn 28% 38% Sugar 21% 44% Beef 16% 17% Chicken 16% 36% Source: USDA, 2013; average

22 Brazil Government Support for Agriculture R$156 billion approved for 2014/2015 Agriculture and Livestock Plan* Total budget increased 14.7% R$44.1 billion out of the R$156 billion allocated to investments. An additional R$24 billion announced for small farmers. Key Government programs to support equipment purchase Programs 1 Where Annual Interest Rate Grace Period (Max) (Years) Term (Years) Maturity Mais Alimentos: HP Tractors Brazil 2.0% 3 10 Perennial Pró-Trator: HP Tractors SP 0.0% 3 6 Not Defined Trator Solidário: HP Tractors PR ~ 2.0% 2 10 Dec14 Finame PSI-BK (new tractors and combines) Moderfrota (new and used tractors and combines) Brazil Brazil 4.5%-6.0% %-6.0% Dec Dec14 1 Exclusively qualified products. Minimum of 60% local content (weight and value) 2 Depending on Farm Size: 4.5% if annual revenues < 90 million reais and 6% if annual revenue > R$90 million reais. 3 4 years if used equipment. * Includes budget for financing input costs, investments and production trade. 22

23 CIS Macroeconomic Data F GDP Growth (%) 3.4% 2.0% 0.9% Inflation (%) 5.8% 6.4% 7.2% Unemployment (%) 4.9% 4.8% 4.6% GDP Composition (Russia) 38% 58% 4% Agriculture Industry Services Major Economies GDP Growth (%) F Source: The World Factbook, 2013 est. Labor Composition(Russia) 28% Russia Ukraine Kazakhstan Belarus 10% 62% Agriculture Industry Services Source: IHS Global Insight July 2014 Source: The World Factbook, 2012 est. 23

24 CIS Ag Economic Data Utilized agricultural area ~ 561 million hectares Arable land ~ 196 million hectares Significant opportunities exist to improve yield rates in all major crops Land under cultivation (sown crops) expected to remain flat over the next decade Deere estimates Western-style equipment used on <25% of farm land Average farm size ~ 995 hectares Number of farms ~ 0.5 million Source: FAO, CIS farm statistics (Russia, Ukraine and Kazakhstan) Deere & Company Forecast as of 13 August 2014 $ Billions $60 $50 $40 $30 $20 $10 $0 Crop Value of Production F Crops included: Wheat, Barley, Corn, Sunflower Seed, Rapeseed, Soybeans, Sugar Beet Source: IHS Global Insight as of July 2014, Russia and Ukraine only Share of the World Market Production Net Exports Total Grains 9% 17% Wheat 14% 16% Barley 21% 24% Corn 4% 17% Sunflower 52% 27% Source: USDA, July 2014; average (Total Grains excl. Rice) 24

25 CIS Government Support of Agriculture Import policies affecting combine sales in Russia, Kazakhstan and Belarus Increasing additional risks for Western competitors given the current Russia/Ukraine conflict and possible Western sanctions Restructured Russian National Ag Program expected to increase Ag support by ca. 50% by 2020 vs in nominal terms, but large annual fluctuations 2013 annual Ag federal budget increased by +18% vs. 2012, included additional regional subsidies 2014 annual Ag budget is moderating by -12% vs. 2013, esp. decreasing arable farms support (~-44%): reflecting overall budget sequestration trend Interest rate subsidies for Ag equipment largely eliminated, partly replaced with direct area payments to Ag operations and direct subsidies to domestic Ag equipment industry Ag equipment localization requirements re-considered/strengthened 25

26 China Macroeconomic Data GDP Composition F Interest rate (%) 6.3% 6.0% 6.0% 45% 46% Inflation (%) 2.7% 2.6% 2.0% Unemployment (%) 4.1% 4.0% 4.0% 9% Services Agriculture Industry GDP Growth (%) Source: IHS Global Insight, 2014 est. Labor Composition 30% 36% 34% Services Agriculture Industry Source: The World Factbook, 2012 est. Source: IHS Global Insight July

27 China Ag Economic Data $250 Crop Value of Production Utilized agricultural area ~ 520 million hectares Arable land & permanent crops ~ 111 million hectares Annual industry tractor sales >325,000 Rural population % of total declined 13% Average farm size ~ 0.47 hectares Number of farms ~ million in 2012 $ Billions $200 $150 $100 $50 $ F Crops Included: Corn, Wheat, Rice, Oilseeds, and Cotton Source: IHS Global Insight July 2014 Share of the World Market Source: Global Insight July 2014 Production Net Exports Total Grains 18% 0.7% Wheat 18% 0.1% Corn 23% 0.3% Rice 30% 2.6% Cotton 25% 1.1% Source: FAO, IHS Global Insight, China National Bureau of Statistics 27

28 China Government Support of Agriculture 2014F Material Subsidy (basic subsidy for purchase of inputs) Grain Direct Subsidy (for growing encouraged crops) Seed Subsidy (for purchasing high-performing seed) Equipment Subsidy (for purchasing encouraged equipment) RMB (in billions) Source: China Ministry of Agriculture 28

29 India Macroeconomic Data F GDP Composition 17% Interest rate (%) 10.6% 10.0% 10.1% Inflation (%) 9.7% 10.1% 7.9% Unemployment (%) 8.8% 9.2% 9.2% 65% 18% Services Agriculture Industry GDP Growth (%) Source: IHS Global Insight, 2014 est. Labor Composition 20% 31% % Services Agriculture Industry Source: IHS Global Insight July 2014 Source: The World Factbook, 2012 est. 29

30 India Ag Economic Data Utilized agricultural area ~ 180 million hectares Arable land ~ 157 million hectares Annual industry tractor sales > 600,000 units Average farm size ~ 1.2 hectares Number of farms ~ 129 million $ Billions $140 $120 $100 $80 $60 $40 $20 $0 Crop Value of Production F Crops included: Corn, Wheat, Rice, Oilseeds, Cotton Source: IHS Global Insight July 2014 Share of the World Market Production Net Exports Total Grains 9% 3% Wheat 13% 3% Corn 2% 3% Rice 21% 12% Cotton 24% 12% Source: Global Insight July 2014 Source: FAO, Tractor Manufacturers Association of India, Indian Ministry of Agriculture 30

31 India Government Support of Agriculture 2014F , , , , , , , ,191 Fertilizer Subsidy Food Subsidy (for households) Interest Rate Subsidy (for farmers) Irrigation Subsidy Electricity Subsidy Other Subsidies (mainly for seeds) ,000 1,500 2,000 2,500 Rupes (in billions) Source: India Ministry of Agriculture ( ), India Ministry of Finance ( F) 31 Deere & Company August/September 2014

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