John Deere. Committed to Those Linked to the Land. Market Fundamentals. Deere & Company September 2013

Transcription

1 John Deere Committed to Those Linked to the Land Market Fundamentals Deere & Company September 2013

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 (14 August 2013). 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. 13 Other Regions 16 3

4 Ag Fundamentals United States

5 U.S. Farm Cash Receipts Projected total cash receipts, although down modestly from 2012 record, remain at historically high levels $450 $400 $350 $300 $ Billions $250 $200 $150 $100 $50 $ F 2013F 2014F Government Payments Total Cash Receipts Source: : USDA 12 August F 2014F: Deere & Company Forecast as of 14 August

6 U.S. Farm Balance Sheet Strong $3,000 30% 28% $2,500 26% $2,000 24% 22% $ Billions $1,500 $1,000 20% 18% 16% $500 14% 12% $ F 2013F Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%) 10% Source: : USDA 12 August F 2013F: Deere & Company Forecast as of 14 August

7 Corn, Soybeans, Wheat and Cotton Prices Nearby Futures: 11 September September 2013 Corn Soybeans Dollars Per Bushel /11/08 9/11/09 9/11/10 9/11/11 9/11/12 9/11/13 Dollars per Bushel /11/08 9/11/09 9/11/10 9/11/11 9/11/12 9/11/13 Dollars per Bushel Wheat /11/08 9/11/09 9/11/10 9/11/11 9/11/12 9/11/13 Dollars per Pound Cotton /11/08 9/11/09 9/11/10 9/11/11 9/11/12 9/11/13 Source: Chicago Board of Trade Corn, Soybeans & Wheat; Intercontinental Exchange Cotton 7

8 Agricultural Growth Energy 2007 U.S. Energy Bill Significantly expanded mandatory levels of renewable fuels Gallons (billions) Corn-Based Starch Ethanol Advanced Biofuels Source: Energy Independence and Security Act of

9 Uses of U.S. Corn Crop , % Bushels (millions) 20,000 15,000 10,000 5, % 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 2022, February

10 World Farm Fundamentals Global Stocks-To-Use Ratios 90% 80% 70% 60% Cotton 50% 40% Wheat 30% 20% 10% Corn Soybeans 0% E 2013P Source: USDA - 12 September

11 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

12 Daily Ethanol Margin Per Bushel Corn Grind Based on Nearby Futures Prices (Excl ITDA*) $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 9/11/09 12/11/09 3/11/10 6/11/10 9/11/10 12/11/10 3/11/11 6/11/11 9/11/11 12/11/11 3/11/12 6/11/12 9/11/12 12/11/12 3/11/13 6/11/13 9/11/13 *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 September

13 Construction & Forestry Fundamentals United States

14 U.S. Housing Starts Housing Starts (Millions of Units) Multi-Family Housing Starts Single-Family Housing Starts F Source: : U.S. Census Bureau December F 2013F: Deere & Company Forecast as of 14 August

15 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 2013F % Total Construction Spend Source: : U.S. Bureau of Economic Analysis December F 2013F: Deere & Company Forecast as of 14 August

16 Other Regions

17 EU 28 Macroeconomic Data F GDP Growth (%) 1.6% -0.3% -0.3% Inflation (%) 2.9% 2.5% 1.6% Unemployment (%) 9.8% 10.7% 11.3% GDP Composition 25% 2% 73% Agriculture Industry Services Major Economies GDP Growth (%) Germany UK France Italy Spain F Source: The World Factbook, 2012 est. Labor Composition 23% 5% 72% Agriculture Industry Services Source: IHS Global Insight July 2013 Source: The World Factbook, 2011 est. 17

18 EU 28 Ag Economic Data Utilized agricultural area ~ 187 million hectares Arable land ~ 107 million hectares Growth potential for Ag equipment industry in Central & Eastern Europe Ongoing farm & Ag land consolidation and yield improvements Average farm size ~ 13 hectares Number of farms ~ 13 million Source: FAO, Eurostat Agricultural Census 2010 Deere & Company Forecast as of 14 August 2013 $ 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 May 2013 Share of the World Market Production Net Exports Total Grains 15% 4% Wheat 20% 9% Barley 40% 19% Pork Meat 22% 30% Cow Milk 30% 19% Source: USDA, 2013; average (Total Grains excl. Rice) 18

19 EU 28 Economic Update Fiscal 2013 Lower levels of farm machinery demand Financial crisis continues to impact EU economy Soft conditions in the UK farm sector Outlook for arable farm income is weakening but remains at supportive levels Improving milk prices will support dairy farmers Deere & Company Forecast as of 14 August

20 EU 28 Government Support of Agriculture Common Agricultural Policy proposed budget frozen at nominal levels (-14% in real terms) Portion of direct payments tied to environmentally-friendly farming practices Limited effects of direct payments redistribution in favor of new member states 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 20

21 Brazil Macroeconomic Data GDP Composition F Interest rate (%) 11.7% 8.5% 7.9% CPI Inflation (%) 6.6% 5.4% 6.4% Unemployment (%) 6.0% 5.5% 5.5% 26% 5% 68% GDP Growth (%) F Agriculture Industry Services Source: Brazilian Institute of Geography and Statistics (IBGE), 2012 est. Labor Composition 23% 17% 60% Agriculture Industry Services Source: IHS Global Insight 2013 Source: Brazilian Institute of Geography and Statistics (IBGE),

22 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 14 August 2013 Source: FAO, Conab, Brazilian Institute of Geography and Statistics (IBGE) F2014F Key crops: soybean, corn, rice, wheat, sorghum, cotton, sugarcane Source: Actual: MAPA (Brazilian Ministry of Agriculture), Jul : Deere & Company Forecast as of 14 August 2013 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

23 Brazil Government Support for Agriculture R$156 billion approved for 2013/2014 Agriculture and Livestock Plan * R$135 billion targeted towards Agribusiness mid/large-scale operations (17.4% higher than 2012/2013) R$21 billion targeted towards family agriculture (16.7% higher than 2012/2013). Special credit line for warehouse investments with 3.5% interest rate by year, 15 years of term and total budget of R$ 25 billion in 5 years. Government programs to support equipment purchases Tractor Engine Interest Grace Programs 1 hp Where Rate Period (Max) Term Maturity Mais Alimentos Brazil 2.0% 3 Years 10 Perennial Pró-Trator SP 0.0% 3 6 Not Defined Trator Solidário PR ~ 2.0% 2 10 Dec14 Finame PSI-BK All Brazil 3.0%-3.5% Dec13 Moderfrota All Brazil 5.5% Jun13 Combine Programs 1 Class Where Interest Rate Grace Period (Max) Term Maturity Mais Alimentos IV Brazil 2.0% 3 Years 10 Perennial Finame PSI-BK All Brazil 3.0%-3.5% Dec13 Moderfrota All Brazil 5.5% Jun13 1 Exclusively Finame qualified products. Minimum of 60% local content (weight and value) 2 3% until 30 June 2013 then 3.5% until 31 December 2013 * Includes budget for financing input costs, investments and production trade. 3 3 years if amount financed > R$100 million 23

24 CIS Macroeconomic Data F GDP Growth (%) 4.7% 3.5% 3.0% Inflation (%) 9.4% 5.8% 6.6% Unemployment (%) 6.2% 5.4% 5.5% GDP Composition (Russia) 36% 60% 4% Agriculture Industry Services Major Economies GDP Growth (%) Russia Ukraine Kazakhstan Belarus F Source: The World Factbook, 2012 est. Labor Composition(Russia) 27% 8% 65% Agriculture Industry Services Source: IHS Global Insight July 2013 Source: The World Factbook, 2011 est. 24

25 CIS Ag Economic Data Utilized agricultural area ~ 560 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 14 August 2013 $ 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 May 2013, Russia and Ukraine only Share of the World Market Production Net Exports Total Grains 9% 17% Wheat 14% 17% Barley 22% 27% Rapeseed 6% 13% Sunflower 50% 35% Source: USDA, 2013; average (Total Grains excl. Rice) 25

26 CIS Government Support of Agriculture Import duty on new and used combines in Russia, Kazakhstan, and Belarus Total for combines and combine bodies is 32.5% (was 5% previously) Effective 27 February 2013 through 5 July 2013 Temporarily suspended until a decision of the Customes Union Supreme Council (No decision expected before Sept 2013: Proposed is a duty of 26.7%; to decrease by 0.5%; to be in place until the end of 2016) Export barriers lifted Russian grain export ban ended in July 2011 Ukraine s wheat and corn export duty ended in October 2011 Barley export duty ended in January 2012 Restructured Russian National Ag Program expected to increase Ag support by over 60% by 2020 in nominal terms Annual Ag federal budget 2013 is increasing by ~+17-20%, additional regional subsidies possible Interest rate subsidies for Ag equipment to be largely eliminated, replaced with direct area payments to Ag operations and direct subsidies to domestic Ag equipment industry Ag equipment localization requirements re-considered/strenghtened 26

27 China Macroeconomic Data GDP Composition F Interest rate (%) 6.35% 6.26% 6.00% Inflation (%) 5.4% 2.7% 2.4% Unemployment (%) 4.1% 4.1% 4.1% 45% 10% 45% GDP Growth (%) F Agriculture Industry Services Source: IHS Global Insight, 2012 est. Labor Composition 36% 35% 29% Agriculture Industry Services Source: The World Factbook, 2011 est. Source: IHS Global Insight

28 China Ag Economic Data Utilized agricultural area ~ 520 million hectares Arable land & permanent crops ~ 126 million hectares 121 million hectares cultivated in 2011 Rural population % of total declined 9% Average farm size ~ 0.5 hectares Number of farms ~ 252 million $ Billions $250 $200 $150 $100 $50 $0 Crop Value of Production F Key crops: corn, wheat, rice, oilseeds, and cotton Source: IHS Global Insight 2013 Share of the World Market Production Source: USDA, 2013; average Net Exports Total Grains 21% 0.5% Wheat 18% 0.7% Corn 24% 0.05% Rice 31% 0.8% Cotton 29% 0.2% Source: FAO, IHS Global Insight, China National Bureau of Statistics 28

29 China Government Support of Agriculture 2013E 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 29

30 India Macroeconomic Data GDP Composition F Interest rate (%) 10.2% 10.3% 9.8% Inflation - WPI (%) 9.5% 7.5% 6.1% Unemployment (%) 8.4% 8.8% 8.6% 64% 18% 18% GDP Growth (%) F Agriculture Industry Services Source: IHS Global Insight, 2010 est. Labor Composition 28% 53% 19% Agriculture Industry Services Source: The World Factbook, 2011 est. Source: IHS Global Insight

31 India Ag Economic Data Utilized agricultural area ~ 180 million hectares Arable land ~ 157 million hectares 140 million hectares net area sown (2007/08) Annual industry tractor sales > 500,000 units Average farm size ~ 1.2 hectares Number of farms ~ 129 million $ Billions $150 $120 $90 $60 $30 $0 Crop Value of Production F Key crops: corn, wheat, rice, oilseeds, cotton Source: IHS Global Insight 2013 Share of the World Market Production Source: USDA, 2013; average Net Exports Total Grains 10% 6% Wheat 14% 6% Corn 2% 3% Rice 22% 20% Cotton 21% 13% Source: FAO, Tractor Manufacturers Association of India, Indian Ministry of Agriculture 31

32 India Government Support of Agriculture , , , , , ,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 Rupees (in billions) Source: India Ministry of Agriculture ( ), India Ministry of Finance ( ) 32

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