Deere FY 4Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Crop receipts expected to be down 17% from 2012 record levels

“US farm cash receipts which in spite of lower grain prices remained at historically high levels, thanks to help from record livestock receipts. As a result, our forecast calls for 2014 cash receipts to be about $413 billion, up about 1% from 2013, which would be the highest level ever recorded.

Given the record grain yield of 2014 and lower commodity prices going forward, our forecast calls for cash receipts to be down about 5% in 2015. Of note, although livestock receipts remain at high levels, crop receipts for 2015 are forecast to be down about 17% lower than 2012 crop receipt record.”

Unfavorable growing conditions could have a big impact on prices

“global grain stocks-to-use ratios remain at somewhat sensitive levels even after abundant harvest. Global grain and oil seed demand remains strong, while supplies appear to be adequate. Even so, unfavorable growing conditions in any key region of the world as well as unknown impacts from any geopolitical tensions could lower production, reduce the stocks-to-use ratio and result in prices quickly moving higher.”

Expect ag and turf equipment sales to be down 20% next year

“fiscal year 2015 Deere sales of worldwide Ag & Turf equipment are now forecast to be down about 20%. The Ag & Turf division operating margin is forecast to be about 8% in 2015 due to lower shipment volumes and a less favorable product mix as large ag machinery shipments declined.”

The long term trends are still in tact

” the trends that hold so much promise for John Deere’s future translates on population growth, rising living standards and increased demand for grain remain very much intact. They are largely unaffected by the periodic ups and downs of the farm economy”

Cash receipts is the best indicator of our future sales

“in some of the analysis that’s been done internally specifically around from our Chief Economist and again we continue to believe that farm cash receipt is the best indicator of sales in the US and Canada”

If you assume normal weather, then demand will outpace production

“much of that increase in the US corn stocks that we’ve seen is related to a bulk normal weather, and that’s resulted in yield really well in excess of trend. If you look out into 2015 and 2016, so the crop that will be planted this spring, if you assume trend yield, so just normal weather, not above normal weather, but normal weather trend yield, assume demand continues at same pace as 2015, so no increase in demand, holding demand solid, even if you assume acreage stays the same, you would see a drawdown in US corn carryovers as a result of that. The demand would outpace the production. And of course, as you’re probably aware, most analysts now expect US corn farmers to reduce acreage somewhat next year. ”

Only one period since 1965 that we’ve had three years of negative sales

“there’s only really one period if you look from 1965 forward where we saw three sequential years of lower sales. And even in that scenario, one of those years, I think, was less than 1% down.”

The worst thing that could happen is really good weather

“I would tell you the biggest downside risk would be that we would have incredibly positive weather again and that you would see trend yields moving forward.”