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Deere forecasts farm revenue will fall on crop prices

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Mitchell South Dakota 120 South Lawler 57301

By Shruti Date Singh

Bloomberg News

CHICAGO -- Deere & Co. forecast a decline in U.S. farm revenue, a key indicator of agricultural-equipment sales, through 2014 as crop prices weaken.

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U.S. farm cash receipts will drop to $389.8 billion in 2013 and $379.7 billion next year from a record $402.1 billion last year, the world's largest farm-equipment maker said in a slide presentation accompanying its fiscal third-quarter earnings report Wednesday. Deere's annual sales have gained 50 percent since fiscal 2007 as farmers' revenue was bolstered by a rally in agricultural commodities.

"Cash receipts are typically an indicator of future demand," Andrew Casey, a Boston-based analyst for Wells Fargo & Co., said in a report Wednesday. Deere's forecast for two straight years of lower crop cash suggests "future farm equipment demand softness."

Most-active futures in Chicago for corn, the largest U.S. crop by sales, have dropped 42 percent in the past year while soybeans have fallen 22 percent on forecasts for production to rebound this year.

Deere fell 1.9 percent to $82.34 at the close in New York. The shares have declined 4.7 percent this year.

Net income rose to $996.5 million, or $2.56 a share, in the three months through July from $788 million, or $1.98, a year earlier, the Moline, Illinois-based company said today in its earnings statement. That exceeded the $2.18 average of 19 analysts' estimates compiled by Bloomberg. Equipment sales climbed 4.3 percent to $9.32 billion, beating the $9.26 billion average of 12 estimates.

Deere said net profit will be about $3.45 billion in the fiscal year through October, up from a May forecast of $3.3 billion.

"It was a good quarter but longer-term we expect fundamentals to weaken in North America for agriculture," Larry De Maria, a New York-based analyst for William Blair & Co., said in a telephone interview Wednesday morning. "The peak probably just happened."

Deere said equipment sales in the current fiscal fourth quarter will drop about 5 percent from a year earlier, when the company ran factories at a high rate to meet customer orders.

For the full fiscal year, equipment sales will increase 5 percent. Sales at Deere's agriculture and turf machinery segment will increase by about 7 percent in the period, including a negative currency impact of about 1 percent, the company said.

Revenue from construction and forestry equipment will drop about 8 percent on "a cautious outlook for U.S. economic growth," it said.

U.S. and Canada made up 64 percent of Deere's $36.2 billion in sales last year.

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