Corn Business Essay

On January 4, 2016 UBS issued a report on Deere & Company (NYSEDE), where it upgraded the company from Sell to Neutral. The 12-month price target is declared $81.
The main focus behind UBS research remained United States corn business. The research house expected corn prices to rise during the next six month. This rise will support Deere's stock. While UBS expect a slight increase in 2016 corn acreage planted, it think there is downside risk to yields, which would cut materially into ending inventories.
UBS expected corn acreage to increase slightly to 89.3m acres in 2016, up from 88.4 in 2015. The decline in soybean prices in 2015, led by good US and South American production, along with weakening Chinese demand, is likely to drive the shift back to corn acreage. UBS didn't expect any material change in corn demand, although it foreseen some downside risk on exports due to the strong dollar.
National Agricultural Statistics Service, US Department of Agriculture released the crops data according to which, the corn plantation continued to decline in 2015 as compared to 2012. The year-over-year (YoY) comparison shows 2% decline in 2015 to 88,381,000 acres from 90,597,000 acres in 2014. The harvesting during the same comparative periods reflects 3% decline.
Lower harvesting took place due to declined corn prices. During five years, these prices dropped 38% YoY from average $6.02 per bushel in 2011 to average $3.71 per bushel in 2015. However, it is likely that these prices might revert in 2016 amid declining corn inventory during the year. This will derive the farmer to harvest more corn.
Credit Suisse Analysis
While UBS kept concentrating over corn impact over Deere, the other research firm Credit Suisse focused towards mergers and acquisitions in agricultural business as a whole, which is currently taking place. Deere's strong balance sheet put the company in a position to acquire such business setups. Keeping this frame in mind, it retained Outperform rating for Deer with a 12-month price target of $87.
Deere's agriculture business is split into 40% large agriculture, 40% small agriculture, and 20% Turf.
Recently, Deere provided its company update where it foresees no change in company's long term growth trend. However, it believed slow US recovery despite commodities' expected price hike.
According to the company, Latin American farmers are earning well, but their lack of confidence remains an issue. Argentina is witnessed as the most profitable region. On the other hand, European region is seen at its bottom levels. Currently, Deere is holding excess construction inventory, but it expects to sell it off by 1H16.
While taking control of expenditures, the company announced 10,000 job cuts from the total 67,000 global workforce. On the other hand, the company mentioned that it does not see any major plant closures based on its longer term market view and the ability to generate good returns on lower sales. Deere provided its 2016 guidance, where it sees $9.09 expected EPS. The company also predicted to achieve $32 billion in sales.