Slumping farm economy weighs on Deere profits

WASHINGTON – Deere & Co. reported Friday that its second-quarter profit plunged 30 percent and warned that a weak global farm economy could weigh on its business into 2016.

The Moline, Ill., maker of iconic green tractors and combines said low corn and soybean prices squeezing farm income have reduced demand around the world for its agricultural machinery, particularly for larger equipment in the U.S. and Canada. Sales are expected to fall 25 percent in the two countries this year.

Deere said global revenue in its agriculture and turf division fell 25 percent to $5.8 billion from the same period a year earlier, and profits dropped 48 percent to $639 million. The company cautioned that strong crop yields could keep commodity prices low for the foreseeable future, limiting how much farmers have to spend on farm equipment.

"It really is about what happens this summer with the current crop that is in the ground," Tony Huegel, Deere's director of investor relations, told analysts Friday. "If you're going to assume another year of better-than-average weather where yields are above trend yields, then certainly it's going to be a challenging argument to make that 2016 will certainly improve, really anywhere around the globe."

The Agriculture Department said earlier this month that soybean production is expected to hit 3.85 billion bushels this year, down 119 million bushels from last year, with a record harvested area more than offset by lower yields. Meanwhile, corn production is projected at 13.6 billion bushels, down 586 million from the last year's record, with a lower forecast area and yield.

In January, Deere announced its third round of layoffs in five months, eliminating the jobs of more than 800 Iowa plant workers due to decreasing demand for its farm equipment. The slumping farm economy has plagued much of the agricultural industry, including Monsanto Co. and Johnston-based DuPont Pioneer. They also have reported slowdowns in their seed business as growers seek to rein in spending.

Overall, Deere posted a second-quarter profit of $691 million, or $2.03 a share, down from $981 million, or $2.65 a share, a year earlier. Revenue declined 18 percent to $8.2 billion.

Shares in the company rose $3.89 to $93.35 in trading on the New York Stock Exchange Friday.