John Deere Committed to Those Linked to the Land Market Fundamentals Deere & Company September 2013
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
Table of Contents Slide # Ag Fundamentals U.S. 4 Construction & Forestry Fundamentals U.S. 13 Other Regions 16 3
Ag Fundamentals United States
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 $0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F Government Payments Total Cash Receipts Source: 1998 2011: USDA 12 August 2013 2012F 2014F: Deere & Company Forecast as of 14 August 2013 5
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% $0 1970 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 2012F 2013F Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%) 10% Source: 1970 2011: USDA 12 August 2013 2012F 2013F: Deere & Company Forecast as of 14 August 2013 6
Corn, Soybeans, Wheat and Cotton Prices Nearby Futures: 11 September 2008 11 September 2013 Corn Soybeans Dollars Per Bushel 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 9/11/08 9/11/09 9/11/10 9/11/11 9/11/12 9/11/13 Dollars per Bushel 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 9/11/08 9/11/09 9/11/10 9/11/11 9/11/12 9/11/13 Dollars per Bushel Wheat 14.00 12.00 10.00 8.00 6.00 4.00 2.00 9/11/08 9/11/09 9/11/10 9/11/11 9/11/12 9/11/13 Dollars per Pound Cotton 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 9/11/08 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
Agricultural Growth Energy 2007 U.S. Energy Bill Significantly expanded mandatory levels of renewable fuels 40 35 30 Gallons (billions) 25 20 15 10 5 0 2008 2010 2012 2014 2016 2018 2020 2022 Corn-Based Starch Ethanol Advanced Biofuels Source: Energy Independence and Security Act of 2007 8
Uses of U.S. Corn Crop 2011-2022 25,000 41.0% Bushels (millions) 20,000 15,000 10,000 5,000 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 2022, February 2013 9
World Farm Fundamentals Global Stocks-To-Use Ratios 90% 80% 70% 60% Cotton 50% 40% Wheat 30% 20% 10% Corn Soybeans 0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013P Source: USDA - 12 September 2013 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 1,000 0 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14F 15/16F Source: Informa August 2013 11
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 2013 12
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 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013F Source: 1960 2011: U.S. Census Bureau December 2012 2012F 2013F: Deere & Company Forecast as of 14 August 2013 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% 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% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F % Total Construction Spend Source: 1995 2011: U.S. Bureau of Economic Analysis December 2012 2012F 2013F: Deere & Company Forecast as of 14 August 2013 15
Other Regions
EU 28 Macroeconomic Data 2011 2012 2013F 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 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 2011 2012 2013F 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
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 2003 2005 2007 2009 2011 2013F 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 2011-2013 (Total Grains excl. Rice) 18
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 2013 19
EU 28 Government Support of Agriculture Common Agricultural Policy proposed budget 2014-2020 frozen at 2007-2013 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) 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 20
Brazil Macroeconomic Data GDP Composition 2011 2012 2013F 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% 8.0 6.0 4.0 2.0 0.0-2.0 GDP Growth (%) 2008 2009 2010 2011 2012 2013F 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), 2012 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 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 14 August 2013 Source: FAO, Conab, Brazilian Institute of Geography and Statistics (IBGE) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2010 2013F2014F Key crops: soybean, corn, rice, wheat, sorghum, cotton, sugarcane Source: Actual: MAPA (Brazilian Ministry of Agriculture), Jul 2013 2013: 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 2011-2012 22
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 50-78 Brazil 2.0% 3 Years 10 Perennial Pró-Trator 50-120 SP 0.0% 3 6 Not Defined Trator Solidário 55-75 PR ~ 2.0% 2 10 Dec14 Finame PSI-BK All Brazil 3.0%-3.5% 2 2 3 10 Dec13 Moderfrota All Brazil 5.5% 1.5 4 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% 2 2 3 10 Dec13 Moderfrota All Brazil 5.5% 1.5 4 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
CIS Macroeconomic Data 2011 2012 2013F 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 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0 Major Economies GDP Growth (%) Russia Ukraine Kazakhstan Belarus 2011 2012 2013F 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
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 2006-2007 (Russia, Ukraine and Kazakhstan) Deere & Company Forecast as of 14 August 2013 $ Billions $60 $50 $40 $30 $20 $10 $0 Crop Value of Production 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 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 2011-2013 (Total Grains excl. Rice) 25
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 2013-2020 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
China Macroeconomic Data GDP Composition 2011 2012 2013F 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% 12.0 10.0 8.0 6.0 4.0 2.0 0.0 GDP Growth (%) 2008 2009 2010 2011 2012 2013F 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 2013 27
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% 2003-2012 Average farm size ~ 0.5 hectares Number of farms ~ 252 million $ Billions $250 $200 $150 $100 $50 $0 Crop Value of Production 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F Key crops: corn, wheat, rice, oilseeds, and cotton Source: IHS Global Insight 2013 Share of the World Market Production Source: USDA, 2013; average 2011-2012 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
China Government Support of Agriculture 2013E 133 15 22 22 192 2012 108 15 22 21 166 2011 86 15 22 18 141 2010 72 15 20 16 123 2009 75 19 20 13 127 2008 72 15 12 4 103 2007 28 15 7 52 2006 2005 2004 12 13 12 14 4 4 17 3 15 31 1 2 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 29
India Macroeconomic Data GDP Composition 2011 2012 2013F 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% 10.0 8.0 6.0 4.0 2.0 0.0 GDP Growth (%) 2008 2009 2010 2011 2012 2013F 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 2013 30
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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F Key crops: corn, wheat, rice, oilseeds, cotton Source: IHS Global Insight 2013 Share of the World Market Production Source: USDA, 2013; average 2011-2012 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
India Government Support of Agriculture 2012 660 850 54 1,564 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 2004 325 262 185 159 313 195 207 151 48 240 170 197 917 56 231 143 258 123 194 809 36 180 756 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 Rupees (in billions) Source: India Ministry of Agriculture (2004-2009), India Ministry of Finance (2010-2012) 32