John Deere Committed to Those Linked to the Land Market Fundamentals Deere & Company August/September 2014
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
Table of Contents Slide # Ag Fundamentals U.S. 4 Construction & Forestry Fundamentals U.S. 12 Other Regions 15 3
Ag Fundamentals United States
U.S. Farm Cash Receipts Projected total cash receipts moderate at historically high levels $450 $400 $350 $300 $ Billions $250 $200 $150 $100 $50 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F Government Payments Total Cash Receipts Source: 1999 2012: USDA 11 February 2014 2013F 2015F: Deere & Company Forecast as of 13 August 2014 5
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% 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F $ Billions Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%) Source: 1971 2012: USDA 11 February 2014 2013F 2014F: Deere & Company Forecast as of 13 August 2014 6
Corn, Soybeans, Wheat and Cotton Prices Nearby Futures: 5 August 2009 5 August 2014 Corn Soybeans 9.00 18.00 Dollars Per Bushel 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 8/5/09 8/5/10 8/5/11 8/5/12 8/5/13 8/5/14 Dollars per Bushel 16.00 14.00 12.00 10.00 8.00 6.00 4.00 8/5/09 8/5/10 8/5/11 8/5/12 8/5/13 8/5/14 Dollars per Bushel Wheat 14.00 12.00 10.00 8.00 6.00 4.00 2.00 8/5/09 8/5/10 8/5/11 8/5/12 8/5/13 8/5/14 Dollars per Pound Cotton 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 8/5/09 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
Uses of U.S. Corn Crop 2012-2023 25,000 44.0% Bushels (millions) 20,000 15,000 10,000 5,000 41.0% 38.0% 35.0% 32.0% 29.0% 26.0% 23.0% 0 20.0% 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 2014 8
World Farm Fundamentals Global Stocks-to-Use Ratios 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Cotton Wheat Corn Soybeans 1993 1996 1999 2002 2005 2008 2011 2014P Source: USDA 12 August 2014 9
Agricultural Growth Energy U.S. Ethanol 6,000 U.S. Corn Used In Ethanol 5,000 4,000 Bushels (millions) 3,000 2,000 1,000 0 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14F 15/16F Source: Informa August 2014 10
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 8/5/2010 11/5/2010 2/5/2011 5/5/2011 8/5/2011 11/5/2011 2/5/2012 5/5/2012 8/5/2012 11/5/2012 2/5/2013 5/5/2013 8/5/2013 11/5/2013 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 2014 11
Construction & Forestry Fundamentals United States
U.S. Housing Starts 2.500 Housing Starts (Millions of Units) 2.250 2.000 1.750 1.500 1.250 1.000 0.750 0.500 0.250 0.000 Multi-Family Housing Starts Single-Family Housing Starts 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014F Source: 1961 2012: U.S. Census Bureau July 2014 2013F 2014F: Deere & Company Forecast as of 13 August 2014 13
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% 900-70% 800-80% 700-90% 600-100% 500-110% 400-120% Residential Investment in Structures 300-130% Nonresidential Investment in Structures 200-140% Government Investment in Structures 100 Government Infrastructure Investment -150% 0-160% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F % Total Construction Spend Source: 1996 2012: U.S. Bureau of Economic Analysis July 2014 2013F 2014F: Deere & Company Forecast as of 13 August 2014 14
Other Regions
EU 28 Macroeconomic Data 2012 2013 2014F 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 4.0 3.0 2.0 1.0 0.0-1.0-2.0-3.0 Major Economies GDP Growth (%) Germany UK France Italy Spain 2012 2013 2014F 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
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 2004 2006 2008 2010 2012 2014F 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 2012-2014 (Total Grains excl. Rice, Cow Milk: Net Exports of Dry Whole Milk Powder) 17
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 2014 18
EU 28 Government Support of Agriculture Common Agricultural Policy budget 2014-2020 frozen at 2007-2013 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) 70 60 50 40 30 20 10 0 2007-2013 2014-2020 1990 1995 2000 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Pillar I (Direct Payments + Market Expenditures) Pillar II (Rural Development) Source: EU Commission, Agra Europe 19
Brazil Macroeconomic Data GDP Composition 2012 2013 2014F 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% 8.0 6.0 4.0 2.0 0.0-2.0 GDP Growth (%) 2009 2010 2011 2012 2013 2014F 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 2014 20
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 2002-2012 (~ 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) 2003 2005 2007 2009 2011 2013 2015F Crops included: Soybean, Corn, Rice, Wheat, Cotton, Sugarcane, Coffee, Orange, and key Fruits & Vegetables. Source: Actual: MAPA (Brazilian Ministry of Agriculture), June 2014 2014 : 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 2011-2012 21
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: 50-78 HP Tractors Brazil 2.0% 3 10 Perennial Pró-Trator: 50-120 HP Tractors SP 0.0% 3 6 Not Defined Trator Solidário: 55-75 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% 2 2 4.5%-6.0% 2 1.5 10 Dec14 8 3 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
CIS Macroeconomic Data 2012 2013 2014F 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 6.0 4.0 2.0 0.0-2.0 Major Economies GDP Growth (%) 2012 2013 2014F Source: The World Factbook, 2013 est. Labor Composition(Russia) 28% -4.0-6.0 Russia Ukraine Kazakhstan Belarus 10% 62% Agriculture Industry Services Source: IHS Global Insight July 2014 Source: The World Factbook, 2012 est. 23
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 2006-2007 (Russia, Ukraine and Kazakhstan) Deere & Company Forecast as of 13 August 2014 $ Billions $60 $50 $40 $30 $20 $10 $0 Crop Value of Production 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 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 2012-2014 (Total Grains excl. Rice) 24
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 2013-2020 expected to increase Ag support by ca. 50% by 2020 vs. 2012 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
China Macroeconomic Data GDP Composition 2012 2013 2014F 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 12.0 10.0 8.0 6.0 4.0 2.0 0.0 GDP Growth (%) 10.5 9.2 9.3 7.7 7.7 7.3 2009 2010 2011 2012 2013 2014 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 2014 26
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% 2003-2013 Average farm size ~ 0.47 hectares Number of farms ~ 257.7 million in 2012 $ Billions $200 $150 $100 $50 $0 2004 2006 2008 2010 2012 2014F 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
China Government Support of Agriculture 2014F 107 15 22 23 167 2013 107 15 22 22 166 2012 108 15 22 21 166 2011 86 15 22 18 141 2010 72 15 22 15 124 2009 76 19 20 13 128 2008 72 15 12 103 2007 2006 2005 12 13 28 14 4 4 17 15 31 7 1 51 4 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) 0 25 50 75 100 125 150 175 200 RMB (in billions) Source: China Ministry of Agriculture 28
India Macroeconomic Data 2012 2013 2014F 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 12.0 10.0 8.0 6.0 8.5 GDP Growth (%) 10.3 6.6 4.7 5.0 5.4 Source: IHS Global Insight, 2014 est. Labor Composition 20% 31% 4.0 49% 2.0 0.0 2009 2010 2011 2012 2013 2014 Services Agriculture Industry Source: IHS Global Insight July 2014 Source: The World Factbook, 2012 est. 29
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 2004 2006 2008 2010 2012 2014F 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
India Government Support of Agriculture 2014F 680 1150 1,830 2013 633 850 1,483 2012 610 850 54 1,514 2011 672 728 40 1,440 2010 623 638 35 1,296 2009 530 560 1,090 2008 766 438 237 275 332 2,048 2007 2006 2005 262 185 325 231 240 313 143 170 194 195 197 56 207 48 809 151 917 1,191 Fertilizer Subsidy Food Subsidy (for households) Interest Rate Subsidy (for farmers) Irrigation Subsidy Electricity Subsidy Other Subsidies (mainly for seeds) 0 500 1,000 1,500 2,000 2,500 Rupes (in billions) Source: India Ministry of Agriculture (2005-2009), India Ministry of Finance (2010-2014F) 31 Deere & Company August/September 2014