In his annual message, John Deere’s Chairman, Sam Allen, described the company’s long-term prospects as “bullish,” but added, “We don’t mean to minimize the challenges we’re facing at the present time … there are signs that some of our key markets may be approaching a bottom, but we are not anticipating a turnaround in 2017.”
USDA’s most recent World Agricultural Supply and Demand Estimates released on Jan. 12, provided some credence to Allen’s remarks. While ag commodity prices aren’t anywhere we’d like them to be, it looks like they may be stabilizing. And this, Michael Shlisky, analyst with Seaport Global Securities, views USDA’s most recent report as “positive for ag equipment stocks.”
With that, Shlisky added, “We now project major crop cash receipts of $102.2 billion, up 7% year-over-year in 2016-17 (flat from last month). On a calendar year basis, our model suggests that overall cash receipts — major crops, other crops and livestock — are expected to be down 2% in CY2017 and flat in CY2018.”
USDA doesn’t expect corn, soybeans or wheat pricing to shift significantly in the near term.
- Corn: The forecasted price range was $3.10-$3.70 per bushel, up at the midpoint from $3.05-$3.65 per bushel last month but down from $3.61 in the prior year. Year
- Soybeans: The forecasted price range was $9.00-$10.00 per bushel, up at the midpoint from $8.70-$10.20 per bushel last month and up from $8.95 in the prior year.
- Wheat: The forecasted price range was $3.75-$3.85, up at the midpoint from $3.60-$3.80 per bushel last month but down from $4.89 in the prior year.
Shlisky says there a strong possibility that U.S. farmers will switch some soybean acres from corn in the upcoming growing season. “While this could provide some stability to corn prices, we have seen multiple soybean forecasts calling for prices below $7 a bushel this year, from nearly $10 per bushel today. Our current crop model assumes $9.35 per bushel for soybeans, so we do note that there are still substantial risks to the downside, and even the current outlook is not conducive to a recovery in heavy-equipment sales.”
Improving Crop Receipts
The analyst expects crop receipts to be up 7% in 2016-17. “Net-net, we view this month's WASDE data as positive for heavy ag OEMs. Our 2016-17 major-crop receipts forecast is now $102.176 billion, up 7% year-over-year and up slightly from last month's model. When adjusted for the calendar year, other crops and livestock-related expectations, however, we currently forecast that farmer cash receipts will be down 2% in CY2017 and flat in CY2018.”