Who says giants can't catch a cold? Deere & Company, the global leader in agricultural machinery, recently poured cold water on the market! When announcing its latest performance, this agricultural machinery giant admitted that the next year will still be tough, and 2026 will also be a "difficult year".
What's going on? Under the triple pressure of high interest rates, low agricultural product prices, and tariff pressures, even industry leaders like Deere & Company have had to bow their heads. Now, Deere is actively retreating, shifting its focus from traditional large tractors to small agricultural and construction machinery. What unknown stories lie behind this?
The performance is impressive, but the outlook is discouraging
Let's first take a look at this report card of Deere. To be honest, the numbers don't look bad! In the fiscal quarter ending November 2, Deere's net sales increased by 14% to $10.58 billion, significantly higher than the $9.83 billion expected by Wall Street. Although net profit decreased from $1.25 billion in the same period last year to $1.07 billion, earnings per share of $3.93 still slightly exceeded market expectations.
What's the problem? It lies in the outlook for the future! Deere's guidance for net profit in fiscal year 2026 is only $4 billion to $4.75 billion, far lower than the $5.11 billion expected by analysts. Once this news came out, the stock price fell accordingly, with a drop of 4.9% during trading.
The triple pressure is so heavy that the farmer can hardly breathe
Why is the demand for agricultural machinery so weak? Ultimately, it's because farmers' wallets are tight!
The first to bear the brunt is the cost of tariffs. With the prices of imported parts and raw materials remaining high, although Deere has raised its product prices, it still cannot fully offset the cost pressure.
More crucially, large tractors, these "big guys", are really not selling well. Against the backdrop of volatile agricultural product prices, how dare farmers spend money on updating equipment casually? A large tractor can easily cost hundreds of thousands or even millions, and this investment carries too much risk.
Coupled with the current high interest rates, the cost of purchasing equipment through loans has soared. Just think about it, the interest alone will be a significant increase, and farmers naturally have to think twice before acting. John May, CEO of Deere, said frankly, "We are used to dealing with industry cycles, but this year's uncertainty is really too great!
Active braking, Dill's way of survival
Facing the predicament, Dill didn't just sit back and wait for his doom, but chose to actively "apply the brakes".
On the one hand, the company strictly controls the production pace and resolutely avoids "overstocking sales". When dealer inventories are high, production is reduced, and the shipment of new machines follows market demand. There is no blind production for short-term performance.
On the other hand, Dier is making every effort to digest the inventory of second-hand equipment in the market. The current decline in the prices of second-hand agricultural machinery has severely squeezed the sales space for new machines. The company is gradually clearing this "quake lake" by slowing down the production of new machines and optimizing replacement plans.
Seeking survival through transformation, small agricultural machinery and construction machinery have become new hopes
Upon a detailed analysis of Deere's business segments, an intriguing phenomenon becomes apparent: while the traditional "large tractors and large combine harvesters" business is projected to decline by 5% to 10% next year, the small agricultural machinery and construction machinery segments are anticipated to experience growth of approximately 10%!
What does this indicate? Dier is transitioning from a focus on the "heavy tractor cycle" to a strategic direction centered on "construction machinery + small agricultural machinery".
Why are construction machinery and equipment so popular? It turns out that the demand for infrastructure construction in the United States remains robust, with the government continuously investing in public infrastructure. Coupled with the booming construction of data centers across the country, these factors have driven the sales of earthmoving equipment and construction machinery.
In contrast, small-scale agricultural machinery targets a more stable consumer market. Small farmers and household users are less affected by fluctuations in agricultural product prices, and their demand is more stable, which can precisely balance the cyclical fluctuations in the large-scale agricultural machinery business.
Dawn is breaking, but spring is still far away
Of course, there is not entirely no good news. The management of Deere revealed that they are encouraged by the policy signals from the Trump administration supporting the agricultural economy. If these policies can be implemented, it will give farmers a sense of reassurance and help restore confidence in agricultural investment.
However, it takes time for the policy dividend to be transmitted to orders. In the face of the reality that tariffs have not significantly decreased and interest rates remain high, Dill remains cautious about the short-term prospects.
Investors are currently experiencing mixed feelings. On the one hand, Deere's sales growth remains impressive, with its construction machinery business performing well and its leading position being solid. On the other hand, the downward revision of profit guidance and weak demand for agricultural machinery raise concerns that the industry's winter has not yet passed.
From the transformation journey of this agricultural machinery giant, we may glimpse the development trend of the entire agricultural equipment industry. When large agricultural machinery struggles to sell, it may be wise to adjust direction in time and explore new markets. Will Deere's self-rescue action succeed? Let's wait and see!