John Deere Committed to Those Linked to the Land Market Fundamentals Deere & Company June/July 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 (14 May 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 remain 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 Government Payments Total Cash Receipts Source: 1999 2012: USDA 11 February 2014 2013F 2014F: Deere & Company Forecast as of 14 May 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 14 May 2014 6
Corn, Soybeans, Wheat and Cotton Prices Nearby Futures: 3 June 2009 3 June 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 6/3/09 6/3/10 6/3/11 6/3/12 6/3/13 6/3/14 Dollars per Bushel 16.00 14.00 12.00 10.00 8.00 6.00 4.00 6/3/09 6/3/10 6/3/11 6/3/12 6/3/13 6/3/14 Dollars per Bushel Wheat 14.00 12.00 10.00 8.00 6.00 4.00 2.00 6/3/09 6/3/10 6/3/11 6/3/12 6/3/13 6/3/14 Dollars per Pound Cotton 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 6/3/09 6/3/10 6/3/11 6/3/12 6/3/13 6/3/14 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 11 June 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 May 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 6/3/2010 9/3/2010 12/3/2010 3/3/2011 6/3/2011 9/3/2011 12/3/2011 3/3/2012 6/3/2012 9/3/2012 12/3/2012 3/3/2013 6/3/2013 9/3/2013 12/3/2013 3/3/2014 6/3/2014 *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 June 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 April 2014 2013F 2014F: Deere & Company Forecast as of 14 May 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 April 2014 2013F 2014F: Deere & Company Forecast as of 14 May 2014 14
Other Regions
EU 28 Macroeconomic Data 2012 2013 2014F GDP Growth (%) -0.3% 0.1% 1.5% Inflation (%) 2.4% 1.4% 1.0% Unemployment (%) 10.6% 11.1% 10.7% 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 April 2014 Source: The World Factbook, 2012 est. 16
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 ~ 14 hectares Number of farms ~ 12 million Source: FAO, Eurostat Agricultural Census 2010 Deere & Company Forecast as of 14 May 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 May 2014 Share of the World Market Production Net Exports Total Grains 15% 5% Wheat 20% 11% Barley 41% 22% Pork Meat 21% 30% Cow Milk 30% 19% Source: USDA, April 2014; average 2011-2013 (Total Grains excl. Rice, Cow Milk: Net Exports of Dry Whole Milk Powder) 17
Economic Update EU 28 Fiscal 2014 Signs of economic stabilization and cyclical recovery Modest GDP growth expected Grain prices and farm income lower but to remain near long-term average Sound livestock margins Beef prices remain solid Near record milk prices will support dairy farmers Feed costs have eased Deere & Company Forecast as of 14 May 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 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 19
Brazil Macroeconomic Data GDP Composition 2012 2013 2014F Interest rate (%) 8.5% 8.2% 10.8% CPI Inflation (%) 5.4% 6.2% 5.9% Unemployment (%) 5.5% 5.4% 5.5% 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 March 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 14 May 2014 Source: FAO, Conab, Brazilian Institute of Geography and Statistics (IBGE) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F Crops included: Soybean, Corn, Rice, Wheat, Cotton, Sugarcane, Coffee, Orange, and key Fruits & Vegetables. Source: Actual: MAPA (Brazilian Ministry of Agriculture), Mar 2014 2014 : Deere & Company Forecast as of 14 May 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 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 Moderfrota All All Brazil Brazil 4.5%-6.0% 2 5.5% 3 2 3 1.5 10 4 Dec14 Jun14 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 Moderfrota All All Brazil Brazil 4.5%-6.0% 2 5.5% 3 2 4 1.5 10 4 Dec14 Jun14 1 Exclusively Finame 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 * Includes budget for financing input costs, investments and production trade. 3 Only used equipment 4 3 years if amount financed > R$100 million 22
CIS Macroeconomic Data 2012 2013 2014F GDP Growth (%) 3.4% 2.0% 1.4% Inflation (%) 5.9% 6.4% 6.6% 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 April 2014 Source: The World Factbook, 2012 est. 23
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 May 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 May 2014, Russia and Ukraine only Share of the World Market Production Net Exports Total Grains 9% 17% Wheat 14% 17% Barley 21% 24% Corn 4% 17% Sunflower 52% 32% Source: USDA, April 2014; average 2011-2013 (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 2012 2013 2014F Interest rate (%) 6.3% 6.0% 6.0% Inflation (%) 2.7% 2.6% 2.0% Unemployment (%) 4.1% 4.0% 4.0% GDP Composition 9% 44% 47% 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 7.5 2009 2010 2011 2012 2013 2014F Agriculture Industry Services Source: IHS Global Insight, 2013 est. Labor Composition 36% 35% 29% Agriculture Industry Services Source: The World Factbook, 2011 est. Source: IHS Global Insight 2013 26
China Ag Economic Data $250 Crop Value of Production 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 $200 $150 $100 $50 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F Crops Included: 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 20% 0.4% Wheat 17% 0.6% Corn 22% 0.1% Rice 30% 0.9% Cotton 28% 0.1% Source: FAO, IHS Global Insight, China National Bureau of Statistics 27
China Government Support of Agriculture 2014E 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 17 4 15 31 7 51 1 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 Interest rate (%) 10.6% 10.0% 10.1% Inflation (%) 9.7% 10.1% 7.7% GDP Composition 17% 18% 65% Unemployment (%) 8.8% 9.2% 9.2% 12.0 10.0 8.0 6.0 4.0 2.0 0.0 GDP Growth (%) 10.3 8.5 6.6 4.7 4.6 5.3 2009 2010 2011 2012 2013 2014F Agriculture Industry Services Source: IHS Global Insight, 2013 est. Labor Composition 28% 53% 19% Agriculture Industry Services Source: The World Factbook, 2011 est. Source: IHS Global Insight 2013 29
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 > 600,000 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 2013 2014F Crops included: 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 13% 4% Corn 2% 3% Rice 22% 25% Cotton 25% 19% Source: FAO, Tractor Manufacturers Association of India, Indian Ministry of Agriculture 30
India Government Support of Agriculture 2013 2012 633 610 850 850 1,483 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 262 185 325 313 195 207 151 48 240 170 197 917 56 231 143 194 809 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) 31